1 robbins geller rudman & dowd llp · robbins geller rudman & dowd llp shawn a. williams...

650452_1

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ROBBINS GELLER RUDMAN & DOWD LLP SHAWN A. WILLIAMS (213113) Post Montgomery Center One Montgomery Street, Suite 1800 San Francisco, CA 94104 Telephone: 415/288-4545 415/288-4534 (fax) [email protected]

– and – TRAVIS E. DOWNS III (148274) BENNY C. GOODMAN III (211302) ERIC I. NIEHAUS (239023) 655 West Broadway, Suite 1900 San Diego, CA 92101-3301 Telephone: 619/231-1058 619/231-7423 (fax) [email protected] [email protected] [email protected]

BARRETT JOHNSTON, LLC GEORGE E. BARRETT DOUGLAS S. JOHNSTON, JR. TIMOTHY L. MILES 217 Second Avenue, North Nashville, TN 37201-1601 Telephone: 615/244-2202 615/252-3798 (fax) [email protected] [email protected] [email protected]

Co-Lead Counsel for Plaintiffs

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

PIRELLI ARMSTRONG TIRE CORPORATION RETIREE MEDICAL BENEFITS TRUST, et al., Derivatively on Behalf of WELLS & FARGO COMPANY,

Plaintiffs,

vs.

JOHN G. STUMPF, HOWARD I. ATKINS, JOHN D. BAKER II, JOHN S. CHEN, LLOYD H. DEAN, SUSAN E. ENGEL, ENRIQUE HERNANDEZ, JR., DONALD M. JAMES, RICHARD D. MCCORMICK, MACKEY J. MCDONALD, CYNTHIA H. MILLIGAN, NICHOLAS G. MOORE, PHILIP J. QUIGLEY, JUDITH M. RUNSTAD, STEPHEN W. SANGER AND SUSAN G. SWENSON,

Defendants,

– and –

WELLS FARGO & COMPANY, a Delaware corporation,

Nominal Defendant.

) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

No. 3:11-cv-02369-SI

(Consolidated)

VERIFIED CONSOLIDATED SHAREHOLDER DERIVATIVE COMPLAINT FOR BREACH OF FIDUCIARY DUTY, ABUSE OF CONTROL, GROSS MISMANAGEMENT AND CORPORATE WASTE

DEMAND FOR JURY TRIAL

Case3:11-cv-02369-SI Document59 Filed09/12/11 Page1 of 108

TABLE OF CONTENTS

Page

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SUMMARY AND OVERVIEW.....................................................................................................1

JURISDICTION AND VENUE ......................................................................................................8

PARTIES .........................................................................................................................................9

Non-Party MERS and MERSCORP..................................................................................16

Non-Party Institutional Shareholders Which Have Demanded Action by the Board of Directors ........................................................................................................................17

THE FIDUCIARY DUTIES OF WELLS FARGO’S DIRECTORS AND OFFICERS...............18

COMMITTEES OF THE WELLS FARGO BOARD OF DIRECTORS .....................................21

BACKGROUND ...........................................................................................................................24

SUBSTANTIVE ALLEGATIONS ...............................................................................................41

Widespread Robo-Signing Begins to be Publicly Known – Wells Fargo Denies Having Participated............................................................................................................44

Wells Fargo Reports 3Q10 Results and Again Falsely Denies that Wells Fargo Robo-Signed Foreclosure Documents ...............................................................................48

Wells Fargo Finally Admits to Robo-Signing and Identifies 55,000 Affidavits Which Would be Re-Filed .................................................................................................51

Wells Fargo Criticized by Government Officials for Lying About Foreclosure Processes and False Assurances that Robo-Signing Did Not Occur at Wells Fargo.........53

Large Institutional Shareholders from New York City Pension Funds, AFL-CIO Demand that the Wells Fargo Board of Directors Take Action to Investigate Loan Servicing Deficiencies to Help Restore Credibility...........................................................56

The United States Senate Launches Investigations and Holds Hearings on Banks’ Signing and Filing of False Affidavits – Several U.S. Government Officials Weigh In.............................................................................................................................59

Class Actions and Individual Borrower Actions Continue to Accumulate Exposing Wells Fargo to Increasing Potential Liability – Courts Issue Stern Orders Regarding Affidavits Against Wells Fargo............................................................62

The New York City Comptroller on Behalf of New York City Public Pension Funds Shareholder Again Demand Action from Wells Fargo Board of Directors Audit Committees ..............................................................................................................65

Defendants Cause Wells Fargo to File Its Form 10-K for the Year Ending Falsely Contending Effectiveness of Internal Controls – Potential Liability Materializes Into $1.2 Billion in Reserves .............................................................................................70


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Wells Fargo Board File Rule 14(a) Proxy Material Urging Shareholders to Vote Against Proposals that Would Require the Board to Conduct an Internal Investigation.......................................................................................................................73

After Rejecting Shareholder Demands for an Interim Review the Board Awards Executives $53 Million in Incentive Awards.....................................................................75

Investigations by the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision – MERS Also Enters Into Consent Order......................................................77

Government Investigations Fall Well Short of Examining the Full Extent of Well Fargo’s Fraudulent Conduct of Robo-Signing – Wells Fargo Accused of Stonewalling Government Inquiries ..................................................................................81

Despite Several Investigations Evidence Suggests that Wells Fargo Continues to Commit a Fraud Upon the Court by Engaging in the Fraudulent Business Practice of Robo-Signing.................................................................................................................87

Wells Fargo Pays $85 Million Penalty and Enters into Consent Order to Resolve Allegations to Predatory Lending and Steering Prime Qualified Loan Applicants Into Subprime Loans Altering Loan Documents ...............................................................88

DAMAGE TO WELLS FARGO...................................................................................................92

CONSPIRACY, AIDING AND ABETTING, AND CONCERTED ACTION ...........................93

DERIVATIVE AND DEMAND FUTILITY ALLEGATIONS ...................................................93

COUNT I .......................................................................................................................................99

COUNT II ....................................................................................................................................100

COUNT III...................................................................................................................................100

COUNT IV...................................................................................................................................101

PRAYER FOR RELIEF ..............................................................................................................101


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“It’s not just individual people who signed affidavits that are flawed, it is a business model based on fraud that was designed to cut corners in the foreclosure process, because these firms continue to think they play [by] a different set of rules than every other party in every

other court case in this country, and they don’t and they’re going to find that out.”

– Ohio Attorney General, Richard Cordray, October 28, 2010

SUMMARY AND OVERVIEW

1. This is a shareholder derivative action on behalf of nominal defendant Wells Fargo &

Company (“Wells Fargo” or the “Company”), against its entire Board of Directors (the “Board”) and

certain top officers for breach of fiduciary duty, abuse of control, gross mismanagement and

corporate waste. Defendants include John G. Stumpf (“Stumpf”), Howard I. Atkins (“Atkins”), John

D. Baker II (“Baker”), John S. Chen (“Chen”), Lloyd H. Dean (“Dean”), Susan E. Engel (“Engel”),

Enrique Hernandez, Jr. (“Hernandez”), Donald M. James (“James”), Richard D. McCormick

(“McCormick”), Mackey J. McDonald (“McDonald”), Cynthia H. Milligan (“Milligan”), Nicholas

G. Moore (“Moore”), Philip J. Quigley (“Quigley”), Judith M. Runstad (“Runstad”), Stephen W.

Sanger (“Sanger”) and Susan G. Swenson (“Swenson”).

2. Beginning at least as early as 2007, defendants caused the Company to materially

engage in the mass processing of loan ownership and servicing documents to facilitate home

foreclosure actions against homeowners who had become delinquent on their home mortgage

payments. Defendants’ mass processing included the creation and execution of thousands of court-

filed affidavits purportedly attesting to the truth and accuracy of loan documentation (including

whether Wells Fargo was indeed the legal owner of the loan on which it sought to foreclose)

referenced or submitted in conjunction with the affidavits. In truth, however, Wells Fargo and third

party servicing agents rarely even read the affidavits or examined the underlying documentation

purporting to evidence the facts they were attesting to, including loan ownership – effectively

committing a fraud upon the court.

3. Notwithstanding these facts, when information was disclosed that Wells Fargo may

have been falsifying court-filed affidavits, defendants caused the Company to repeatedly,

aggressively and defiantly deny that there were any problems with the accuracy of the Company’s

foreclosure affidavits. In fact, the Chief Financing Officer (“CFO”), Atkins told shareholders that



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the issues concerning Wells Fargo and false affidavits were “overstated” and “misrepresented” in the

marketplace.

4. Ultimately, the Company would be forced to admit deficiencies in more than 50,000

of its court-filed foreclosure affidavits. As a result of improper, and many times false affidavits, the

Company is and has been subject to multiple lawsuits and government investigations and likely

hundreds of millions of dollars in civil fines and penalties.

5. In 2008, the United States embarked upon one of the largest economic crises in U.S.

history. At the core of the U.S. financial crisis was the collapse of the housing bubble “fueled by the

low interest rates, easy and available credit, scant regulation and toxic mortgages.” See Financial

Crisis Inquiry Report at xvi (2011). As home values plummeted and unemployment skyrocketed in

the United States and the world, the financial markets nearly came to a halt. In its wake and

aftermath, hundreds of U.S. banks failed, including Lehman Brothers and American International

Group (“AIG”), a renowned insurance giant.

6. At the same time, lending institutions that held mortgages on homes on which

mortgage payments became delinquent began foreclosing on homeowners that fell significantly

behind on their mortgage payments. In 2009 and 2010, foreclosure actions in states where

foreclosures were controlled by the court system accelerated and began to dominate banks’ loan

servicing units.

7. In the summer of 2010, allegations were levied that some U.S. lending institutions,

including nominal defendant Wells Fargo, Ally Financial Inc. (aka GMAC Mortgage Co.), Bank of

America, JPMorgan Chase, Citigroup and others were mass processing foreclosure documents,

including court-filed declarations in support of foreclosure proceedings on behalf of banks.

8. The mass processing included robotically signing affidavits purporting to verify that

the banks actually owned the mortgages and that the homeowners were in fact delinquent on the

loans being foreclosed upon. In truth however, lenders, including Wells Fargo and their agents

executed and in many instances falsified court documents without even attempting to verify the truth

or accuracy of the facts asserted therein. A euphemism for the mass processing of false

documentation was quickly coined – “robo-signing.”



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9. As a result of the robo-signing phenomenon, lending institutions and their loan

servicing agents routinely submitted false sworn documents to courts and in many instances

succeeded in removing people from their homes without legitimate documentation evidencing that

the respective lending institutions had standing (legal ownership rights) to foreclose on the loans.

10. In September 2010, as the public outcry regarding the process began to surge, certain

of the large lending institutions, including Bank of America and Citigroup, issued moratoriums on

foreclosures in order to investigate the propriety and veracity of allegations that said banks were

engaging in robo-signing and submission of false legal documentation.

11. On September 22, 2010, a Wall Street Journal article, entitled “GMAC Spotlight on

Robo-Signer,” discussed some of the evidence supporting claims that robo-signing had become a

routine part of the lending institutions’ foreclosure processes. The article detailed specific events

and deposition testimony provided by Jeffrey Stephan and Beth Cottrell, employees of GMAC

Mortgage Co. and Chase Home Mortgage, respectively, wherein they each admitted to signing

thousands of affidavits purportedly in support of foreclosure proceedings without even verifying the

truth or accuracy of the facts stated in the affidavits.

12. While this testimony had been elicited regarding GMAC Mortgage Co., it was

remarkably similar to testimony that had been elicited over a period of several months in 2010 in

several cases brought by Wells Fargo wherein the deponents admitted to such practices as more fully

explained herein below.

13. Wells Fargo, however, notwithstanding growing evidence that it too was engaged in

robo-signing on October 12, 2010, denied that any such practices were being carried out by any of its

agents and boldly affirmed that its foreclosure practices were sound and its affidavits in support of

foreclosures were accurate:

“Wells Fargo’s policies, procedures and practices satisfy us that the affidavits we sign are accurate. We audit, monitor and review our affidavits under controlled standards on a daily basis. We will stand by our affidavits and if we find an error we will take the appropriate action.”

14. On October 13, 2010, the National Association of Attorneys General and the

Mortgage Foreclosure Multistate Group, consisting of the Attorneys General of 49 states, led by



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Tom Miller, Attorney General of the State of Iowa, issued a joint statement describing its

investigation into robo-signing of foreclosure documents, including affidavits purporting to support

foreclosures on mortgage loans. The joint statement articulated that the group’s belief was that the

process of signing affidavits without confirming the accuracy of their contents may in fact constitute

a deceptive act and violate state law.

15. On October 14, 2010, the Financial Times published an article entitled “Spotlight

falls on Wells Fargo foreclosure procedures.” The article disclosed that notwithstanding Wells

Fargo’s denials about its foreclosure processes regarding the verification of mortgage foreclosure

documents, one of its loan officers had sworn in a deposition that she signed as many as 500

foreclosure-related documents each day without verifying the contents of the documents other than

her name and her title. The documents/affidavits were then used to support lawsuits brought by

Wells Fargo to initiate and complete home foreclosures:

Spotlight falls on Wells foreclosure procedures

Wells Fargo, the second-biggest US mortgage servicer, has remained above the fray in recent weeks as banks have come under scrutiny for rubber-stamping thousands of mortgage documents without verifying their contents as required by law.

Unlike Bank of America, JPMorgan Chase and GMAC, Wells Fargo has not halted foreclosures and has maintained that it has no problems with its procedures.

Yet, a sworn deposition by one of its loan documentation officers suggests otherwise. Xee Moua said she signed as many as 500 foreclosure-related papers a day on behalf of the bank. Ms Moua said the only information she had verified was whether her name and title appeared correctly.

Asked whether she checked the accuracy of the principal and interest that Wells Fargo claimed the borrower owed – an important step in banks’ legal actions to foreclose – Ms Moua replied: “I do not.”

Ms Moua nevertheless signed affidavits, reviewed by the Financial Times, that said she had “personal knowledge of the facts regarding the sums of money which are due and owing to Wells Fargo”. These affidavits were used in lawsuits brought by Wells Fargo to repossess homes.

Ms Moua said it was her understanding the foreclosure documents had been reviewed by outside lawyers before reaching her.

16. On October 20, 2010, the Company held a conference call for analysts and investors

in connection with the Company’s quarterly financial results. The call was hosted by Chief



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Executive Officer (“CEO”) and Chairman of the Board Stumpf and CFO Atkins. During the call

Stumpf and Atkins continued to assure investors and shareholders that Wells Fargo’s mortgage

servicing processes, specifically on foreclosures, were sound and that the questions in the industry

regarding robo-signing, at least with respect to Wells Fargo, were overblown and that the

Company’s internal control processes already in place ensured reliability and accuracy:

[Stumpf:] Now, I know we have all been hearing in recent months about business practices within our industry.

* * *

[W]e are confident that our practices, procedures, and documentation for both foreclosures and mortgage securitizations are sound and accurate. Third, we did not and do not plan to initiate a foreclosure moratorium.

* * *

[Atkins:] Then finally, we are confident in our foreclosure and mortgage securitization policies, practices, and controls and the adequacy of our repurchase reserve.

* * *

With that, let me shift to give you an overview of the foreclosure and mortgage securitization issues. These are issues obviously that are very important to consumers, mortgage investors, and shareholders. But we believe that these issues have been somewhat overstated and, to a certain extent, misrepresented in the marketplace. I would like to be clear here on how they impact Wells Fargo specifically.

* * *

Second, our foreclosure and securitization policies, practices, and controls in our view, are sound. To help ensure accuracy over the years, Wells Fargo has built control processes that link customer information with foreclosure procedures and documentation requirements.

Our process specifies that affidavit signers and reviewers are the same team member, not different people, and affidavits are properly notarized. . . .

We ensure loans in foreclosure are assigned to the appropriate party as necessary to comply with local laws and investor requirements, and legal documents related to securitizations are sound, and appropriate transfers of ownership were made.

* * *

[Stumpf:] I don’t know how other companies do it, but in our Company our process has – the affidavit signer and reviewer are the same team member. And we believe these issues – they are properly notarized.



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17. Shortly after Wells Fargo’s conference call, on October 27, 2010, the Company was

forced to admit that contrary to prior denials, including specific denials to the Ohio Attorney

General, who has begun his own investigation into the Company’s foreclosure process, Wells

Fargo’s control processes were deficient, and in particular, its foreclosures processes had included

the same robo-signing alleged to have afflicted other large lending institutions. Wells Fargo

disclosed further that more than 50,000 foreclosure affidavits submitted on its behalf would require

resubmission due to apparent robo-signing:

Wells Fargo Provides Update on Foreclosure Affidavits And Mortgage Securitizations

* * *

As part of the company’s review of its foreclosure affidavit procedures, the company has identified instances where a final step in its processes relating to the execution of the foreclosure affidavits (including a final review of the affidavit, as well as some aspects of the notarization process) did not strictly adhere to the required procedures. The issues the company has identified do not relate in any way to the quality of the customer and loan data; nor does the company believe that any of these instances led to foreclosures which should not have otherwise occurred.

18. On November 9, 2010, John C. Liu (“Liu”), New York City Comptroller, as trustee of

Fire New York City Employee Pension Funds, submitted a shareholder proposal to the Company for

inclusion within its Definitive Proxy Statement related to the Company’s annual meeting of

stockholders to be held during 2011. The proposal to the Board of Directors suggested by Liu and

the Systems’ boards of trustees outlined the reported deficiencies and the scope of investigations that

warranted immediate action by the Board of Directors and particularly the Audit Committee. The

proposal would require that the Board, through the Audit Committee, conduct an independent review

of the Company’s internal controls related to loan modifications, foreclosures and securitizations,

and report to shareholders, at reasonable cost and omitting proprietary information, its findings and

recommendations by September 30, 2011.

19. On November 10, 2010, the American Federation of Labor and Congress of Industrial

Organizations (AFL-CIO) wrote to Wells Fargo requesting submitting a proposal for the inclusion in

the 2011 proxy materials. The request was similar to that of the New York City Systems seeking a

resolution that the Company prepare a report on its internal controls over mortgage servicing



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operations, including among other things, procedures to prevent legal defects in the processing of

affidavits related to foreclosure.

20. Throughout December 2010 and January 2011, lawsuits began to mount and

institutional shareholders continued to demand that the Board of Directors conduct an independent

investigation concerning the Company’s mortgage servicing process. For example, on January 9,

2011, the New York City Office of the Comptroller issued a press release titled “$432 Billion

Pension Fund Coalition Demands Bank Directors Immediately Examine Foreclosure Practices.” The

coalition included the five New York City Pension Funds and the Connecticut Retirement Plan and

Trust Funds, of Illinois State Universities Retirement Systems, the New York State Common

Retirement Fund, the North Carolina Retirement Systems and the Oregon Public Employees

Retirement Fund. The press release quoted North Carolina State Treasurer, Janet Cowell, who had

placed responsibility squarely on the Audit Committee:

“The responsibility for making sure that internal controls and compliance process are in place for mortgage and foreclosure practices rests squarely with these Audit Committees,” . . . . “The recent testimonies and studies strongly suggest the need for these Audit Committees to act swiftly and objectively in conducting an independent and comprehensive review of these practices.”

21. On February 25, 2011, the Company filed its Form 10-K. The Form 10-K included a

disclosure confirming that in addition to a multitude of lawsuits relating to its foreclosure processes,

it was in fact likely that the government would initiate some form of enforcement action against the

Company related to the foreclosure document investigation. As a result, the Company could be

subject to significant civil penalties. The Company further acknowledged that it had established a

$1.2 billion loss reserve to cover potential losses regarding its foreclosure practices. The Form 10-K

provided in part:

MORTGAGE RELATED REGULATORY INVESTIGATIONS Several government agencies are conducting investigations or examinations of various mortgage related practices of Wells Fargo Bank. The investigations relate to two main topics, (1) whether Wells Fargo may have violated fair lending or other laws and regulations relating to mortgage origination practices; and (2) whether Wells Fargo’s practices and procedures relating to mortgage foreclosure affidavits and documents relating to the chain of title to notes and mortgage documents are adequate. With regard to the investigations into foreclosure practices, it is likely that one or more of the government agencies will initiate some type of enforcement action against Wells Fargo, which may include civil money penalties. Wells Fargo continues to provide information requested by the various agencies.



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22. On March 21, 2011, the Company filed its 14(a) Proxy Statement with the Securities

and Exchange Commission (“SEC”). The members of the Board caused the Company to include

City Comptroller Liu’s stockholder proposal in its Proxy Statement filed with the SEC on March 21,

2011. After describing the requested resolution, however, the Board of Directors urged shareholders

to vote against the resolution explaining that such an investigation would amount to a distraction for

the Company.

23. On March 31, 2011, Wells Fargo entered into a Consent Order issued by the Office of

the Comptroller of the Currency (“OCC”). The OCC made specific findings of fact that the

Company had engaged in unsound or unsafe banking practices related to its residential loan

servicing and its mortgage foreclosure processing. On April 13, 2011, Wells Fargo entered into a

Consent Order with the Board of Governors of the Federal Reserve. Both governmental agencies

reserved the right to seek civil penalties against the Company.

24. On May 5, 2011, the Company filed its Form 10-Q for the first quarter of 2011

(“1Q11”), announcing it had increased its litigation loss reserve to $1.7 billion. The Form 10-Q

further confirmed the investigations by the State Attorneys General and the U.S. Department of

Justice were still ongoing and could result in significant fines and civil penalties.

JURISDICTION AND VENUE

25. This Court has jurisdiction pursuant to 28 U.S.C. §1332(a)(1), because plaintiff and

defendants are citizens of different states and the amount in controversy exceeds $75,000, exclusive

of interest and costs.

26. In addition, certain of the claims asserted herein arise under §§10(b), 14(a) and 20(a)

of the Exchange Act, 15 U.S.C. §§78j(b), 78n(a) and 78t(a), and Rule 10b-5, 17 C.F.R. §240.10b-5,

promulgated thereunder, and under California and Delaware law for violations of breach of fiduciary

duty, abuse of control, constructive fraud, corporate waste, unjust enrichment, insider trading and

gross mismanagement. In connection with the acts, conduct and other wrongs complained of herein,

defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, the

United States mail and the facilities of a national securities market. Thus, this Court has subject



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matter jurisdiction pursuant to §27 of the Exchange Act, 15 U.S.C. §78aa, as well as 28 U.S.C.

§§1331 and 1337.

27. This action is not a collusive action designed to confer jurisdiction on a court of the

United States that it would not otherwise have.

28. This Court has jurisdiction over each defendant named herein because each defendant

is either a corporation that conducts business in and maintains operations in this District, or is an

individual who has sufficient minimum contacts with this District so as to render the exercise of

jurisdiction by the courts of this District permissible under traditional notions of fair play and

substantial justice.

29. Venue is proper in this Court because Wells Fargo has a substantial presence in

California and is headquartered in San Francisco, California. Moreover, each defendant has had

extensive contacts with California as a director and/or officer of Wells Fargo or otherwise, which

makes the exercise of personal jurisdiction over them proper, and certain of the defendants reside in

this District.

PARTIES

30. Plaintiff Pirelli Armstrong Tire Corporation Retiree Medical Benefits Trust (“Pirelli”)

is a shareholder of Wells Fargo and will adequately represent the interests of Wells Fargo in this

action.1 Pirelli is a citizen of the State of Tennessee. Pirelli has continuously held shares of the

Company’s common stock since January 26, 2009.

31. Plaintiff City of Westland Police and Fire Retirement System (“City of Westland”) is

a shareholder of Wells Fargo and will adequately represent the interests of Wells Fargo in this

action. City of Westland is a citizen of the State of Michigan. City of Westland has continuously

held shares of the Company’s common stock since May 2009.

32. Nominal party Wells Fargo is a diversified financial services company that provides

retail, commercial and corporate banking services principally in the United States. Nominal

1 At January 31, 2011, there were 201,714 holders of record of the Company’s common stock.



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defendant Wells Fargo is a Delaware corporation with its headquarters located in San Francisco,

California.

33. Defendant John G. Stumpf has served as Chairman of Wells Fargo since January

2010, as CEO since 2007, as a director since 2006 and as President since 2005. As a director,

defendant Stumpf has agreed to abide by the terms of the Wells Fargo & Company Director Code of

Ethics. After the 1998 merger of Wells Fargo and Northwest Corporation, a predecessor of Wells

Fargo that had employed Stumpf since 1982, defendant Stumpf became the head of the Company’s

Southwest Banking Group, and in 2000 headed the Company’s new Western Banking Group.

Defendant Stumpf led the integration of the Company’s acquisition of First Security Corporation in

2000, and in 2008 led one of the largest mergers in history with the Company’s purchase of

Wachovia. Defendant Stumpf reportedly enjoyed compensation of approximately $18,756,172 in

2009 and $17,100,000 in 2010.

34. Defendant Howard I. Atkins served as CFO and Executive Vice President of Wells

Fargo from 2001 to February 8, 2011. As CFO, defendant Atkins was responsible for leading the

Company’s financial management functions, including the Company’s controllers, financial

reporting, tax management, asset-liability management, treasury, corporate development, investor

relations and mergers and acquisitions. During the Relevant Period, moreover, defendant Atkins

issued statements in Company press releases and participated in the Company’s conference calls

with analysts and investors, representing himself as a primary person with knowledge about the

Company’s business, outlook, financial reports and business practices. Defendant Atkins reportedly

enjoyed compensation of approximately $11,500,000 in 2009 and $8,900,000 in 2010. Defendant

Atkins abruptly resigned from the position as CFO from the Company on February 8, 2011 and was

scheduled to retire on August 6, 2011, with approximately $22 million in deferred compensation and

benefits. Defendant Atkins is a citizen of the State of California.

35. Defendant John D. Baker II has served as a director of Wells Fargo since 2009. As a

director, defendant Baker has agreed to abide by the terms of the Wells Fargo & Company Director

Code of Ethics. Previously, defendant Baker had served as a director of Wachovia Corporation since

2001, until it was acquired by Wells Fargo on December 31, 2008. Defendant Baker serves on the



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Board’s Audit and Examination Committee, Corporate Responsibility Committee and Credit

Committee, and has agreed to abide by the terms of the respective charters of each committee on

which he serves. In addition to the demand futility allegations set forth specifically below, defendant

Baker’s role on the aforementioned Board committees during the Relevant Period implicates his

decisions on those committees. Defendant Baker reportedly enjoyed total compensation as a Wells

Fargo director of $295,667 in 2010. Defendant Baker is a citizen of the State of Florida.

36. Defendant John S. Chen has served as a director of Wells Fargo since 2006. As a

director, defendant Chen has agreed to abide by the terms of the Wells Fargo & Company Director

Code of Ethics. Defendant Chen reportedly enjoyed total compensation as a Wells Fargo director of

$275,667 in 2008, $289,789 in 2009 and $297,667 in 2010. Defendant Chen is a citizen of the State

of California.

37. Defendant Lloyd H. Dean has served as a director of Wells Fargo since 2005. As a

director, defendant Dean has agreed to abide by the terms of the Wells Fargo & Company Director

Code of Ethics. Defendant Dean serves on the Board’s Audit and Examination Committee,

Corporate Responsibility Committee (Chair), Credit Committee, and Risk Committee, and has

agreed to abide by the terms of the respective charters of each committee on which he serves. In

addition to the demand futility allegations set forth specifically below, defendant Dean’s role on the

aforementioned Board committees during the Relevant Period implicates his decisions on those

committees. Defendant Dean reportedly enjoyed total compensation as a Wells Fargo director of

$250,431 in 2008, $333,789 in 2009 and $297,667 in 2010. Defendant Dean is a citizen of the State

of California.

38. Defendant Susan E. Engel has served as a director of Wells Fargo since 1998. As a

director, defendant Engel has agreed to abide by the terms of the Wells Fargo & Company Director

Code of Ethics. Defendant Engel serves on the Board’s Credit Committee and Finance Committee,

and has agreed to abide by the terms of the respective charters of each committee on which she

serves. In addition to the demand futility allegations set forth specifically below, defendant Engel’s

role on the aforementioned Board committees during the Relevant Period implicates her decisions on

those committees. Defendant Engel reportedly enjoyed total compensation as a Wells Fargo director



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of $248, 431 in 2008, $307,789 in 2009 and $293,667 in 2010. Defendant Engel is a citizen of the

State of New York.

39. Defendant Enrique Hernandez, Jr. has served as a director of Wells Fargo since 2003.

As a director, defendant Hernandez has agreed to abide by the terms of the Wells Fargo & Company

Director Code of Ethics. Defendant Hernandez serves on the Board’s Audit and Examination

Committee, Corporate Responsibility Committee, Finance Committee (Chair), and Risk Committee,

and has agreed to abide by the terms of the respective charters of each committee on which he

serves. In addition to the demand futility allegations set forth specifically below, defendant

Hernandez’s role on the aforementioned Board committees during the Relevant Period implicates his

decisions on those committees. Defendant Hernandez reportedly enjoyed total compensation as a

Wells Fargo director of $269,681 in 2008, $326,789 in 2009 and $304,667 in 2010. Defendant

Hernandez is a citizen of the State of California.

40. Defendant Donald M. James has served as a director of Wells Fargo since 2009. As a

director, defendant James has agreed to abide by the terms of the Wells Fargo & Company Director

Code of Ethics. Previously, James had served as a director of Wachovia Corporation since 2004,

until it was acquired by Wells Fargo on December 31, 2008. Defendant James serves on the Wells

Fargo Board’s Finance Committee, and has agreed to abide by the terms of its charter. In addition to

the demand futility allegations set forth specifically below, defendant James’s role on the

aforementioned Board committee during the Relevant Period implicates his decisions on that

committee. Defendant James reportedly enjoyed total compensation as a Wells Fargo director of

$285,667 in 2010. Defendant James is a citizen of the State of Alabama.

41. Defendant Richard D. McCormick served as a director of Wells Fargo from 1983

through May 3, 2011. As a director, defendant McCormick agreed to abide by the terms of the

Wells Fargo & Company Director Code of Ethics. Defendant McCormick served on the Board’s

Finance Committee, and agreed to abide by the terms of its charter. Defendant McCormick

reportedly enjoyed total compensation as a Wells Fargo director of $246,181 in 2008, $297,789 in

2009 and $283,667 in 2010.



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42. Defendant Mackey J. McDonald has served as a director of Wells Fargo since 2009.

As a director, defendant McDonald agreed to abide by the terms of the Wells Fargo & Company

Director Code of Ethics. Previously, defendant McDonald had served as a director of Wachovia

Corporation since 1997, until it was acquired by Wells Fargo on December 31, 2008. Defendant

McDonald serves on the Board’s Governance and Nominating Committee, and has agreed to abide

by the terms of its charter. In addition to the demand futility allegations set forth specifically below,

defendant McDonald’s role on the aforementioned Board committee during the Relevant Period

implicates his decisions on that committee. Defendant McDonald reportedly enjoyed total

compensation as a Wells Fargo director of $281,667 in 2010. Defendant McDonald is a citizen of

the State of North Carolina.

43. Defendant Cynthia H. Milligan has served as a director of Wells Fargo since 1992.

As a director, defendant Milligan agreed to abide by the terms of the Wells Fargo & Company

Director Code of Ethics. Defendant Milligan serves on the Board’s Audit and Examination

Committee, Corporate Responsibility Committee, Credit Committee (Chair), Governance and

Nominating Committee, and Risk Committee (Chair), and has agreed to abide by the terms of the

respective charters of each committee on which she serves. In addition to the demand futility

allegations set forth specifically below, defendant Milligan’s role on the aforementioned Board

committees during the Relevant Period implicates her decisions on those committees. Defendant

Milligan reportedly enjoyed total compensation as a Wells Fargo director of $252,431 in 2008,

$320,244 in 2009 and $327,101 in 2010. Defendant Milligan is a citizen of the State of Nebraska.

44. Defendant Nicholas G. Moore has served as a director of Wells Fargo since 2006. As

a director, defendant Moore agreed to abide by the terms of the Wells Fargo & Company Director

Code of Ethics. Defendant Moore serves on the Board’s Audit and Examination Committee (Chair),

Credit Committee, and Risk Committee, and has agreed to abide by the terms of the respective

charters of each committee on which he serves. In addition to the demand futility allegations set

forth specifically below, defendant Moore’s role on the aforementioned Board committees during the

Relevant Period implicates his decisions on those committees and renders him hostile to the instant

action. Defendant Moore reportedly enjoyed total compensation as a Wells Fargo director of



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$245,431 in 2008, $359,789 in 2009 and $327,667 in 2010. Defendant Moore is a citizen of the

State of California.

45. Defendant Philip J. Quigley has served as a director of Wells Fargo since 1994, and

currently serves as the Board’s Lead Director. As a director, defendant Quigley agreed to abide by

the terms of the Wells Fargo & Company Director Code of Ethics. Defendant Quigley serves on the

Board’s Audit and Examination Committee, Governance and Nominating Committee (Chair), and

Risk Committee, and has agreed to abide by the terms of the respective charters of each committee

on which he serves. In addition to the demand futility allegations set forth specifically below,

defendant Quigley’s role on the aforementioned Board committees during the Relevant Period hereto

implicates his decisions on those committees. Defendant Quigley reportedly enjoyed total

compensation as a Wells Fargo director of $282,431 in 2008, $343,789 in 2009 and $348,839 in

2010. Defendant Quigley is a citizen of the State of California.

46. Defendant Judith M. Runstad has served as a director of Wells Fargo since 1998. As

a director, defendant Runstad agreed to abide by the terms of the Wells Fargo & Company Director

Code of Ethics. Defendant Runstad serves on the Board’s Corporate Responsibility Committee,

Credit Committee, and Finance Committee, and has agreed to abide by the terms of the respective

charters of each committee on which she serves. In addition to the demand futility allegations set

forth specifically below, defendant Runstad’s role on the aforementioned Board committees during

the Relevant Period implicates her decisions on those committees. Defendant Runstad reportedly

enjoyed total compensation as a Wells Fargo director of $238,431 in 2008, $293,789 in 2009 and

$293,919 in 2010. Defendant Runstad is a citizen of the State of Washington.

47. Defendant Stephen W. Sanger has served as a director of Wells Fargo since 2003. As

a director, defendant Sanger agreed to abide by the terms of the Wells Fargo & Company Director

Code of Ethics. Defendant Sanger serves on the Board’s Finance Committee (2010 only),

Governance and Nominating Committee (2011 only) and Risk Committee, and has agreed to abide

by the terms of the respective charters of each committee on which he serves. In addition to the

demand futility allegations set forth specifically below, defendant Sanger’s role on the

aforementioned Board committees during the Relevant Period implicates his decisions on those



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committees. Defendant Sanger reportedly enjoyed total compensation as a Wells Fargo director of

$264,431 in 2008, $317,789 in 2009 and $305,667 in 2010. Defendant Sanger is a citizen of the

State of Minnesota.

48. Defendant Susan G. Swenson has served as a director of Wells Fargo since 1994. As

a director, defendant Swenson agreed to abide by the terms of the Wells Fargo & Company Director

Code of Ethics. Defendant Swenson serves on the Board’s Audit and Examination Committee and

Governance and Nominating Committee, and has agreed to abide by the terms of the respective

charters of each committee on which she serves. In addition to the demand futility allegations set

forth specifically below, defendant Swenson’s role on the aforementioned Board committees during

the Relevant Period implicates her decisions on those committees and renders her hostile to the

instant action. Defendant Swenson reportedly enjoyed total compensation as a Wells Fargo director

of $252,431 in 2008, $305,789 in 2009 and $377,217 in 2010. Defendant Swenson is a citizen of the

State of California.

49. Defendants Stumpf, Atkins, Baker, Chen, Dean, Engel, Hernandez, James,

McCormick, McDonald, Milligan, Moore, Quigley, Runstad, Sanger and Swenson, because of their

positions with the Company, possessed the power and authority to control the contents of Wells

Fargo’s quarterly reports, press releases and presentations to shareholders and analysts. They were

provided with copies of the Company’s false and misleading reports and press releases before or

shortly after their issuance and had the ability and opportunity to prevent their issuance or cause

them to be corrected. Because of their positions with the Company, and their access to material non-

public information available to them but not to the public, defendants knew that the adverse facts

specified herein had not been disclosed to and were being concealed from the public and that the

positive representations being made were then materially false and misleading. Defendants are

liable for the false and misleading statements and omissions pleaded herein.

50. Defendants, and each of them, acted in bad faith and breached their fiduciary duties

of candor, loyalty and good faith owed to Wells Fargo by causing or permitting Wells Fargo to enter

into transactions to the detriment of Wells Fargo. Defendants also acted in bad faith and breached

their fiduciary duties of candor, loyalty and good faith owed to Wells Fargo by causing Wells Fargo



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to issue false and misleading statements concerning its business prospects and revenue and income

projections.

Non-Party MERS and MERSCORP

51. Non Party Mortgage Electronic Registration System, Inc. (“MERS”) is a wholly-

owned subsidiary of MERSCORP, Inc. was created in 1994 by the mortgage finance industry,

including Wells Fargo, Bank of America, HSBC, the Mortgage Bank Association and others. The

purpose of MERS was to maintain a database to simplify the tracking and servicing of individual

mortgages and speed up the recording and transfer of mortgages as opposed to physically recording

transfers and assignment documentation in state and county clerks offices. Mortgage lenders or

originators designated MERS as its assignee or nominee with the power to assign and transfer the

mortgage. According to MERS, the MERS system is the only central database of mortgage loan

information. Further, according to MERS, the data on MERS system is provided and maintained by

MERS members, including Wells Fargo. MERS is supported by membership and transaction fees

paid by MERS members. According to MERS, it has received no income from foreclosures.

52. In a stipulated consent order entered into by the OCC and MERS on April 13, 2011,

the functionality of MERS is described as follows in summary. MERSCORP’s shareholders include

federally regulated financial institutions that own and/or service residential mortgages. MERSCORP

operates a national electronic registry that tracks beneficial ownership interests and servicing rights

associated with residential mortgage loans and any changes in those interests or right. Members of

MERS, including Wells Fargo, receive a substantial portion of the services provided by

MERSCORP and MERS. MERS serves as mortgagee of record and nominee for the participating

members in local land records. MERS takes action as mortgagee through documents executed by

“certifying officers” of MERS. MERS has designated these individuals, who are officers or

employees of members or certain third-parties who have contractual relationships with members, as

officers of MERS. By virtue of these designations, the certifying officers execute legal documents in

the name of MERS, such as mortgage assignments and lien releases.

53. As of the date of this filing, the MERS Board of Directors consist of the following

individuals, including Joe Jackson, Senior Vice President, Wells Fargo N.A.:



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Name Title Company Location Kurt Pfotenhauer, Chairman

CEO American Land Title Association

Washington, DC

Bill Beckmann President and CEO MERSCORP, Inc.

Reston, VA

Albert Celini Vice President, Single Family Operations and Technology

Freddie Mac McLean, VA

Diane Citron Senior Vice President, Director of Strategy for Mortgage Operations

Ally Financial, Inc.

New York, NY and Fort Washington, PA

Joe Jackson Senior Vice President Wells Fargo Bank, N.A.

Des Moines, IA

Brian McCrackin Director of Finance CitiMortgage, Inc.

St. Louis, MO

Gwen Muse-Evans Vice President and Chief Risk Officer for Credit Portfolio Management

Fannie Mae Washington, DC

Robert Reynolds Executive Vice President SunTrust Banks, Inc.

Richmond, VA

Eric Schuppenhauer Senior Vice President, Home Lending

JPMorgan Chase Columbus, OH

David H. Stevens President and CEO Mortgage Bankers Association

Washington, DC

Lawrence P. Washington

Managing Director and Servicing Portfolio Strategy Executive

Bank of America, N.A.

Jacksonville, FL

Non-Party Institutional Shareholders Which Have Demanded Action by the Board of Directors

54. During the Relevant Period and particularly in the fall of 2010 when robo-signing

phenomenon began to be reported in the market place, certain large institutional shareholders of

Wells Fargo and other large loan originators and services voiced their concerns to Wells Fargo

concerning its particular mortgage servicing practices reported in the media. For example, in

November 2010, Liu, New York City Comptroller, submitted a shareholder proposal to the

Company for inclusion within its Definitive Proxy Statement related to the Company’s annual

meeting of stockholders to be held during 2011. The letter included a proposal that the Board direct

the Audit Committee to an internal review of the Company’s internal controls related to foreclosure

processes and report its conclusions to the shareholders, and include such proposal in the Company’s

2011 shareholder proxy materials. The November 9, 2010 letter was sent to the Board on behalf of

the following institutions:

(a) New York City Employees’ Retirement System;



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(b) New York City Fire Department Pension Fund;

(c) New York City Teachers’ Retirement System and New York City Police

Pension Fund;

(d) New York City Board of Education Retirement System;

(e) Connecticut Retirement Plans and Trust Funds;

(f) Illinois State Board of Investment;

(g) Illinois State Universities Retirement System;

(h) New York State Common Retirement Fund; and

(i) North Carolina Retirement Systems.

55. Together, each of the above institutions reportedly held, collectively, tens of millions

of shares in Wells Fargo valued at more than $1 billion to $1.6 billion. The Board, while including

the shareholder proposal in the 2011 proxy material, recommended that shareholders vote against the

proposal.

THE FIDUCIARY DUTIES OF WELLS FARGO’S DIRECTORS AND OFFICERS

56. Each director and officer of Wells Fargo owed Wells Fargo and its shareholders the

duty to exercise the highest degree of candor, good faith and loyalty in the management and

administration of the Company’s affairs, as well as in the use and preservation of Wells Fargo’s

property and assets. Delaware law holds: “Loyalty. Good faith. Independence. Candor. These are

words pregnant with obligation. The Supreme Court did not adorn them with half-hearted

adjectives. Directors should not take a seat at the board table prepared to offer only conditional

loyalty, tolerable good faith, reasonable disinterest or formalistic candor.” In re Tyson Foods, Inc.

Consol. S’holder Litig., No. 1106-CC, 2007 Del. Ch. LEXIS 120, at *10-*11 (Del. Ch. Aug. 15,

2007).

57. The conduct of Wells Fargo’s directors and officers complained of herein involves a

knowing and culpable violation of their fiduciary obligations, the absence of good faith on their part,

and a reckless disregard for their duties to the Company which the directors and officers were aware

or should have been aware posed a risk of serious injury to the Company. The conduct of Wells



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Fargo’s directors and officers who engaged in illegal conduct has been ratified by Wells Fargo’s

Board, which has failed to take any action against them, despite knowledge of such actions and

rejected the taking of action proposed by shareholders, specifically, that the Company do an internal

audit of its foreclosure practices among other things and report findings to Company shareholder.

58. To discharge their fiduciary duties of candor, good faith and loyalty, Wells Fargo’s

directors and officers were required, among other things, to:

(a) in good faith, manage, conduct, supervise and direct the business and affairs

of Wells Fargo and its subsidiaries in accordance with applicable state and federal laws;

(b) neither violate nor knowingly permit any director, officer or employee of

Wells Fargo to violate applicable federal and state laws, rules and regulations or any rule or

regulation of Wells Fargo;

(c) remain informed as to the status of Wells Fargo’s operations, and upon receipt

of notice or information of imprudent, unsound or unlawful practices, to make a reasonable inquiry

in connection therewith, and to take steps to correct such conditions or stop such practices; and

(d) ensure that Wells Fargo was operated in a diligent, honest and prudent manner

in compliance with all applicable federal and state laws, rules and regulations.

59. By reason of their corporate positions and their ability to control the business and

corporate affairs of Wells Fargo, defendants were required to use their ability to control Wells Fargo

in a fair, just and equitable manner, as well as to act in furtherance of the best interests of Wells

Fargo and not in furtherance of their own personal interests or ideology. In violation of their

fiduciary duties of candor, loyalty and good faith, defendants caused Wells Fargo to conduct its

business in an unsafe, imprudent, dangerous and illegal manner.

60. Defendants participated in the wrongdoing complained of herein in order to

improperly benefit themselves, instead of acting in the best interests of the Company, and to remain

as directors and officers of a public corporation and to continue and prolong the illusion of Wells

Fargo’s success and to conceal the adverse facts concerning Wells Fargo’s actual financial condition

so that they could protect and perpetuate their directorial and/or executive positions and increase the

substantial compensation, perks and prestige they obtained thereby. Such participation involved,



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among other things, planning and creating (or causing to be planned and created), proposing (or

causing the proposal of) and authorizing, approving and acquiescing in the illegal conduct

complained of herein.

61. During the Relevant Period, each of the defendants occupied a position with Wells

Fargo or was associated with the Company in such a manner as to make them privy to confidential

and proprietary information concerning Wells Fargo and its operations, finances and financial

condition. Because of these positions and such access, each of the defendants knew that the true

facts specified herein regarding Wells Fargo’s business and finances had not been disclosed to and

were being concealed from its shareholders and the public. Defendants, as corporate fiduciaries

entrusted with non-public information, were obligated to disclose material adverse information

regarding Wells Fargo and to take any and all actions necessary to ensure that the officers and

directors of Wells Fargo did not act upon such privileged non-public information in a manner which

caused the Company to violate the law.

62. Defendants breached their duties of candor, loyalty and good faith by allowing or by

themselves causing the Company to misrepresent its financial results and prospects, as detailed

herein, and by failing to prevent defendants from taking such illegal actions. Each of the defendants

participated in the issuance and/or review of false and misleading statements, including the

preparation of false and misleading press releases, SEC filings and reports to Wells Fargo

shareholders. In addition, as a result of defendants’ illegal actions and course of conduct, the

Company is the target of an investigation by the SEC.

63. Pursuant to Wells Fargo’s Director Code of Ethics, Wells Fargo expects its directors

“to act in a manner that will serve the best interests of Wells Fargo; that is fair, honest and

trustworthy; that is in compliance with applicable laws, rules and regulations; that will preserve

confidential information; that will avoid conflicts of interest or the appearance of conflicts of

interest; and that will protect and promote the proper use of Wells Fargo’s assets.”

64. The Company has established corporate governance guidelines, which state:

One of the Board’s key responsibilities is to ensure that the Company, through its management, maintains high ethical standards and effective policies and practices designed to protect the Company’s reputation, assets and business.



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The Board has adopted and promotes the Wells Fargo Code of Ethics and Business Conduct applicable to all team members, and has adopted a Director Code of Ethics applicable to members of the Board. Directors shall be familiar with, and are expected to conduct their activities in accordance with, the Director Code of Ethics.

65. The Company’s Team Member Code of Ethics and Business Conduct states:

To preserve and foster the public’s trust and confidence, complete honesty and fairness is required in conducting internal and external business. It’s important that every Wells Fargo team member understands that the honesty, trust, and integrity essential for meeting the highest standards of corporate governance are not just the responsibility of senior management or boards of directors.

COMMITTEES OF THE WELLS FARGO BOARD OF DIRECTORS

66. During the Relevant Period, the Company’s Board maintained five separate

committees on which certain director defendants sat. The Board Committees were the Audit and

Examination Committee, the Credit Committee, the Financial Committee and the Governance and

Nominating Committee.

67. Audit and Examination Committee: Under Wells Fargo’s Audit and Examination

Committee Charter, the members of the committee are required, among other things, to:

(a) review and discuss with management the Company’s annual and quarterly

financial statements;

(b) review annual and quarterly earnings press releases in advance of their

issuance;

(c) discuss or review financial information and earnings guidance provided to

Wells Fargo’s shareholders, securities analysts and members of the financial press;

(d) review any reports by management regarding the effectiveness of, or any

deficiencies in, the design or operation of disclosure controls and procedures or internal controls, and

any fraud, whether or not material, that involves management or other employees who have a

significant role in Wells Fargo’s internal controls; and

(e) monitor compliance with the Company’s Code of Ethics and Business

Conduct by Wells Fargo’s directors, officers and employees.



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Here, the members of the Audit and Examination Committee (defendants Baker, Dean,

Hernandez, Milligan, Moore, Quigley and Swenson) failed to discharge their fiduciary duties and

obligations under the Audit and Examination Committee Charter.

68. Corporate Responsibility Committee: Under Wells Fargo’s Corporate Responsibility

Committee Charter, the members of the committee are required, among other things, to:

(a) oversee the Company’s policies, programs, and strategies regarding social

responsibility matters, including those relating to the Company’s fair and responsible mortgage

lending and the Company’s government relations; and

(b) monitor the Company’s reputation and relationships with its external

stakeholders, including its customers regarding social responsibility matters.

Here, the members of the Corporate Responsibility Committee (defendants Baker, Dean,

Hernandez, Milligan and Runstad) failed to discharge their fiduciary duties and obligations under the

Corporate Responsibility Committee Charter.

69. Credit Committee: Under Wells Fargo’s Credit Committee Charter, the members of

the committee are required, among other things, to:

(a) review the quality of the Company’s credit portfolio and the trends affecting

that portfolio;

(b) oversee the effectiveness and administration of credit-related policies;

(c) review the adequacy of the allowance for credit losses; and

(d) to report to the Board regarding these matters.

Here, the members of the Credit Committee (defendants Baker, Dean, Engel, Milligan,

Moore and Runstad) failed to discharge their fiduciary duties and obligations under the Credit

Committee Charter.

70. Finance Committee: Under the Wells Fargo’s Finance Committee Charter, the

members of the committee are required, among other things, to:

(a) oversee the Company’s major financial risks, including liquidity and funding

risk, market risk and financial risks (including credit risk) related to the Company’s investment

security portfolio;



(b) oversee the Company’s capital management and planning processes;

(c) review financial strategies for achieving financial objectives;

(d) review financial performance results;

(e) oversee reputation risk related to the Committee’s responsibilities described in

the Finance Committee Charter; and

(f) report to the Board the conclusions of the Committee regarding these matters.

Here, the members of the Finance Committee (defendants Engel, Hernandez, James and

Runstad) failed to discharge their fiduciary duties and obligations under the Finance Committee

Charter.

71. Governance and Nominating Committee: Under Wells Fargo’s Governance and

Nominating Committee Charter, the members of the committee are required, among other things, to:

(a) recommend to the Board the corporate governance guidelines applicable to the

Company;

(b) oversee an annual review of the Board’s performance;

(c) review from time to time director compensation and recommend any changes

for approval of the Board;

(d) oversee the Company’s engagement with stockholders and other interested

parties concerning governance and other related matters; and

(e) oversee reputation risk related to the responsibilities described in the

committee’s Charter.

72. During the Relevant Period, the members of the Governance and Nominating

Committee (defendants McDonald, Milligan, Quigley, Sanger and Swenson) failed to discharge their

fiduciary duties and obligations under the Governance and Nominating Committee Charter.2

2 Risk Committee: Under Wells Fargo’s Risk Committee Charter, which was created in 2011, the members of the committee are required, among other things, to:

(a) oversee the Company’s strategies, policies, procedures and systems, established by management to identify, assess, measure and manage major risks faced by Wells Fargo;

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73. The chart below illustrates which respective committee each Company board member

served on throughout the Relevant Period of 2010 through 2011:

BACKGROUND

74. As early as 2007, Wells Fargo, including its subsidiaries, agents and partners,

including MERSCORP and MERS and through the height of the financial crisis instituted home

foreclosure proceedings in judicial foreclosure states throughout the country. Wells Fargo also

instituted home foreclosure processes in non-foreclosure states like California. In both sets of

scenarios, as part of an intentional and strategic business practice, Wells Fargo, knowing and/or

recklessly implemented and employed a policy and business strategy to accelerate the home

foreclosure process by mass processing declarations or affidavits to be submitted in court

proceedings and filed with state agencies purporting to evidence accurate transfer and recording of

title on properties it sought to foreclose upon.

75. The Wells Fargo business practice and strategy was knowingly or recklessly designed

to avoid the work and cost associated with obtaining facts or documents representing ownership,

standing and the right to foreclose on properties. The Company, through certain of its employees,

(b) review and discuss policies with respect to risk assessment and risk management, including the Company’s major financial, operational, compliance or reputational risk exposures; and

(c) monitor the steps management has taken to control such risk exposures.



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has admitted the process was designed to and permitted Wells Fargo employees and agents to submit

affidavits purportedly with personal knowledge without determining the accuracy and truthfulness of

the affidavits it was executing and filing in courts around the country. The Company’s practice and

procedures of mass processing foreclosure documents was also designed to and/or had the effect of

concealing the possibility that title and standing could not be perfected in which case the Company

would be at risk of writing down millions if not billions of dollars in mortgages. Therefore, in

addition to the accelerated foreclosure processes facilitated by MERS, even internally, volume and

speed were paramount such that certain Wells Fargo departments or units and units working on

behalf of Wells Fargo functioned as foreclosure mills, along with other large banks, often employing

the same individuals posing as company vice presidents, purportedly as Wells Fargo senior

executives or vice presidents in order for the affidavits to appear legitimate.

76. According to a number of Wells Fargo employees, Wells Fargo executes all of the

documents necessary for foreclosures nationwide from an office in Fort Mill, South Carolina. Based

almost exclusively on information generated by a Wells Fargo proprietary Matrix computer system,

Company employees in the document execution department sign all foreclosure documents and

affidavits that are presented to them without personally verifying any substantive information. See

¶¶84-85, 87. By design, the sole responsibility of employees in the document execution department

is, as the name suggests, to execute documents and affidavits, trusting that some other division of

Wells Fargo has confirmed that the information is correct.

77. Defendant Atkins, during the Company's 3Q10 financial results conference call

conceded that Wells Fargo’s process for executing affidavits was indeed designed by the Company

and the Company was in fact aware of how it was designed to work. See ¶16 (“To help ensure

accuracy over the years, Wells Fargo has built control processes that link customer information with

foreclosure procedures and documentation requirements.”). But in the same conference call,

defendant Atkins falsely represented that “[o]ur process specifies that affidavit signers and reviewers

are the same team member, not different people, and affidavits are properly notarized.” Id. Despite

these misrepresentations, defendant Atkins and the other defendants knew that Wells Fargo’s

foreclosure affidavit process – including the Company’s reliance on its Matrix computer system as



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described by certain Wells Fargo Home Mortgage employees – was designed, implemented and

executed in a fashion that would not only permit, but require Company employees to cause Wells

Fargo to file false affidavits with the courts and state agencies.

78. Among those Wells Fargo employees, during the Relevant Period and as early as

2007, was Linda Green (“Green”), who executed loan documentation as Vice President of Wells

Fargo. Green, whose name appeared as a vice president on countless mortgage assignments used by

Wells Fargo, was fraudulently used by Docx employees including Chris Pendley who signed for

“Linda Green” approximately 4,000 documents a day. Lynn Szymoniak, who was fighting

foreclosure, and was an attorney and fraud investigator specializing in forged documents, researched

over 10,000 mortgages and noticed the many different ways in which Green’s name was signed. As

explained in a 60 Minute special by Scott Pelley some of the details of Docx and robo-signer Green

were reported:

One of the strangest signatures belonged to the bank vice president who had signed Szymoniak’s newly discovered mortgage documents. The name is Linda Green. But, on thousands of other mortgages, the style of Green’s signature changed a lot.

And, even more remarkable, Szymoniak found Green was vice president of 20 banks - all at the same time.

Where did all those documents come from? We went searching for “the” Linda Green and found her in rural Georgia. She told us she has never been a bank vice president.

In 2003, she was a shipping clerk for auto parts when her grandson told her about a job at a company called Docx. . . .

“They were sitting in a room signing their name as fast as they possibly could to any kind of nonsense document that was put in front of them,” Szymoniak said.

Docx, and companies like it, were recreating missing mortgage assignments for the banks and providing the legally required signatures of bank vice presidents and notaries. Linda Green says she was named a bank vice president by Docx because her name was short and easy to spell. As demand exploded, Docx needed more Linda Greens.

“So you’re Linda Green?” Pelley asked Chris Pendley.

“Yeah, can’t you tell?” Pendley, who is a man, replied.

Pendley worked at Docx at the same time and signed as Linda Green.



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“When you came in to Docx on your first day, what did they tell you your job was gonna be?” Pelley asked.

“They told me that I was gonna be signing documents for using someone else’s name,” Pendley remembered.

* * *

“How many banks were you vice president of in a given day?” Pelley asked.

“I would guess somewhere around five to six,” Pendley said.

79. The 60 Minutes exposé went further with Pendley in which he said that he alone

signed 4,000 documents per day.

Pendley showed us how he signed mortgage documents as “Linda Green.” He told us Docx employees had to sign at least 350 an hour. Pendley estimates that he alone did 4,000 a day.

Shawanna Crite worked at Docx and was also a “Linda Green.” She says she both signed and notarized the mortgage documents.

80. The CBS interview and exposé continued and disclosed that 60 Minutes had been told

by Green that some of the bank vice presidents signing foreclosure documents were high school kids

and their signatures were entered into evidence in untold thousands of foreclosure suits that sent

families packing.

Szymoniak says that the banks whose paperwork was handled by the Docx forgery mill include Wells Fargo, HSBC, Deutsche Bank, Citibank, U.S. Bank and Bank of America. We contacted all of them. Each said it farmed out its mortgage servicing work to other companies and it was those mortgage servicing firms that hired Docx.

81. Green indeed executed foreclosure documents, purportedly on behalf of MERS, as its

Vice President. More notably, MERS, of which Wells Fargo is a member and also sits on MERS

Board of Directors, identifies its address as 2701 Wells Fargo Way, Minneapolis, MN, sharing an

address with Wells Fargo. For example, set forth below in a March 2007 affidavit signed by Green

as Vice President of MERS sharing an address with Wells Fargo:



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82. In addition, well before it became more widely disclosed, Wells Fargo and the

defendants knew or recklessly disregarded that the Company the business practice designed to speed

foreclosures and conceal the likelihood of millions of imperfect title transfer and assignments, had

already been challenged in foreclosure around the country. Wells Fargo employees had testified in

legal proceedings that they had executed hundreds of thousands of false affidavits purporting to

evidence ownership and standing to foreclosure on mortgages wherein they had no personal

knowledge of the facts to which they were affirming. For example, as part of several lawsuits that

had been instituted by Wells Fargo, deposition testimony of Wells Fargo employees detailed the

Wells Fargo policy and practice of executing hundreds of foreclosure-related documents to

accelerate and facilitate the foreclosure process. The testimony of multiple employees confirmed

that Wells Fargo mass-processed foreclosure affidavits filed in agencies and courts around the

country, were falsified in order to accelerate foreclosure proceedings. A number of these depositions

were taken months before Wells Fargo’s public denials of such practices. These facts were known

or deliberately disregarded by defendants, who designed and/or turned a blind eye to Wells Fargo’s

execution and submission of false documents to courts and permitted this conduct while rewarding

Company executives, including defendant Stumpf, with huge compensation packages.

83. Xee Moua: On March 9, 2010, Xee Moua (“Moua”), another Wells Fargo employee,

testified that she had signed as many as 500 foreclosure-related documents each day without

verifying the contents of the documents other than her name and her title – effectively committing a

fraud upon the court on behalf of Wells Fargo. See Wells Fargo Bank N.A. v. John P. Stipek, et al.,

No. 50 2009 CA 01243 (Circuit Court of the 15th Jud. Cir. – Palm Beach County). The same Wells

Fargo documents/affidavits were then used by Wells Fargo to support lawsuits brought by Wells

Fargo, including the Stipek case, to initiate and complete home foreclosures. Moua testified, in

substance, that it was Wells Fargo’s practice, process and procedure not to have those executing

foreclosure documents personally review the underlying materials. Instead, others, including

attorneys apparently retained by Wells Fargo or “liaisons” who process the loans purportedly

reviewed said documents, however, Moua could not affirm the truth of the fact.



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84. During Moua’s March 9, 2010 testimony, Moua testified that in addition to being told

by her supervisor that she had authority to execute affidavits on behalf of Wells Fargo, she had

received a document she referred to as a “Corporate Vote” from the Wells Fargo Legal Department,

approved by management, which provided authorization to sign loan foreclosure documents on

behalf of Wells Fargo.

Q. As a Work Director what are your job responsibilities?

A. Job responsibilities are pretty much the same: I help out my team with any execution of documents; I oversee that these documents are executed and returned in a timely manner to our attorneys . . . .

* * *

Q. How does your job as a Work Director differ from the job as a processor?

A. I have more responsibilities, I do have authorization to execute on behalf of Wells Fargo.

* * *

Q. Was there some form of certificate or something that gave you that authorization?

A. Not necessarily. All we have is a corporate vote from our legal department indicating we are authorized to execute on behalf of Wells Fargo. . .

* * *

A. This authorization is actually approved by management, and it’s sent over to our legal department.

* * *

Q. So did you receive a document evidencing this corporate vote?

A. Yes, sir.

Q. And in what form, is it a letter that you received?

A. It’s a document. It’s a document signed by legal.

* * *

Q. How many documents would you say you sign a day?

A. In a day’s workload, hundreds.

* * *



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Q. And when you say hundreds – when you’re referencing documents, you mean the previous documents that you listed; whether it be an affidavit, an affidavit for judgment, substitution of trustee, those documents?

A. Yes, sir.

* * *

Q. When you sign these documents, what do you do, what do you look at on the documents?

A. Make sure my information is there and correct, and I sign.

Q. When you say your information?

A. My name, my title.

Q. Anything else?

A. That is it.

85. Further discussing specific documents signed for purposes of advancing a foreclosure,

Moua testified that she had no personal knowledge whatsoever of the underlying facts attested to:

Q. Well, I’ll move on from that. I believe it’s the third sentence in Paragraph 2, it says that: Wells Fargo Bank Successor By Merger to Wells Fargo Home Mortgage, Inc. is responsible for the collection of this loan transaction and pursuit to any delinquency in payments; on what do you base that knowledge?

A. I don’t base that knowledge on anything. As far as I know, this is already confirmed by the attorney or the liaison, so I would not have no knowledge of that, that paragraph.

Q. You don’t have no personal knowledge?

A. No personal knowledge, whatsoever.

86. John Kennerty: On May 14, 2009, Herman John Kennerty (“Kennerty”) executed an

affidavit again purportedly as Vice President of Wells Fargo Bank, N.A., attorney in fact for

Deutsche Bank National Trust Company, purporting to represent a legal ownership and assignment

of a property in Massachusetts. On October 12, 2009, Kennerty, on behalf of Wells Fargo, N.A., as

its Vice President of Loan Documentation, executed a Power of Attorney purporting to provide the

Harmon Law Offices in Newton, MA, permission to enter a property for purposes of foreclosing on

the mortgage on that property.



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87. Kennerty has since testified in deposition in the case of Geline v. Northwest Trustee

Services, et al., No. 09-2-46576-2 SEA, Superior Court for King County, Washington, that he was

an employee of Wells Fargo Home Mortgage, a subsidiary of Wells Fargo Bank. He testified that he

was a loan administration manager, and a Vice President in the Company’s document default group.



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The document default group, according to Kennerty, was responsible for ordering and obtaining

collateral documents for loans, the execution of assignments and the execution of foreclosure related

documents. Kennerty’s testimony included the following:

Q. By whom are you employed?

A. Wells Fargo.

Q. Can you tell me which part of Wells Fargo?

A. Wells Fargo Home Mortgage.

Q. Which is a subsidiary of Wells Fargo Bank?

A. Right.

* * *

Q. And that’s what you’re doing now?

* * *

A. With Wells Fargo, I am a loan administration manager managing our default document group.

Q. Why don’t you tell me what your job duties are of that.

A. There’s three main areas within the default doc. group. The first one is the ordering and obtaining of collateral documents for loans. The assignment team, the execution of assignments, as well as the executable team which is the executing of other foreclosure-related documents.

* * *

Q. Are you also vice president?

A. Of loan documentation.

* * *

Q. Can you tell me about how many documents you sign a day?

A. Anywhere from 50 to 150.

* * *

Q. So you’re getting these documents, the loss mitigation declaration, and the beneficiary declaration, and those two documents are printed and presented to you by somebody else for signing; right?

A. Correct.

* * *



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Q. Somebody comes and brings you those documents and you sit down to sign them. And you’re looking at the documents to make sure that the date is correct and consistent with the date you’re signing the document; correct?

A. Yes.

* * *

Q. So you’re simply signing the document that’s presented to you and you’re just making sure that the date is correct?

A. Correct.

88. Stanley Silva: On January 4, 2010, in Jones, et al. v. Wells Fargo Bank, et al.,

No. CV10-01660, another person, Stanley Silva (“Silva”), not employed by Wells Fargo, but

nevertheless signed documents on its behalf, also admitted to the practice of robo-signing notices of

foreclosures. Silva testified that he did not even work in the foreclosures department and did not

review any documents prior to signing the notices of foreclosures and had no idea if the information

in the notice of default was correct. Nevertheless, Silva routinely executed the notices of defaults

with verifying the accuracy of the information contained therein. Silva testified he signed about 200

default notices over a four-year period. Silva’s testimony included the following:

A. We don’t work in foreclosures.

Q. You don’t work in foreclosures?

A. No.

Q. You don’t sign notices of default stating foreclosures?

A. I sign notices of default, yes.

Q. And what do you understand the effect of a notice of default is?

A. It starts the clock ticking on the formal foreclosure period.

Q. But that is not working in foreclosures is your testimony under oath here today on this video?

A. Correct.

Q. Does a notice of default put the property in foreclosure?

A. It starts the formal process of the foreclosure time frames.

* * *



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Q. What documents do you review prior to signing a notice of default?

A. We don’t review any documents.

Q. What documents are provided to you in connection with a loan where a notice of default is presented to you for your signature?

A. Nothing.

89. To illustrate just how wide-spread Wells Fargo’s robo-signing business model of

committing frauds upon courts pervaded the Courts can be found in case of Wells Fargo Bank, N.A.

et al. v. John C. Kosar and Linda S. Kosar, No. MG-10-000400, Civil Division, Court of Common

Pleas for Allegheny County, Pennsylvania. There, homeowners who were sued for foreclosure by

Wells Fargo, filed a Motion to Stay and Petition for Rule to Show Cause Why Action Should not Be

Dismissed, With Prejudice, for Widespread, Systematic and Deliberate Violations of the Rules of

Court and for Attorneys Fees, after discovery the use of robo-signing in their case and 89 other cases

filed in the first few months of 2010 in that county alone.

90. The original verification to the foreclosure pleading was filed by Wells Fargo’s

counsel on the basis the plaintiff (Wells Fargo) was either outside the jurisdiction “and/or” the

verification could not be filed within the time allowed for filing the pleading. A substitution

verification was subsequently filed by well-known robo-signer Moua.

91. Reportedly, upon investigation by counsel for the homeowner by researching the

docket in that county of foreclosure cases filed by Wells Fargo, the homeowner defendants presented

the court in the motion and/or petition a list of 89 cases in that county alone filed in the first few

months of 2010 where Wells Fargo had engaged the same exact conduct of filing attorney

verifications followed up by false robo-signed verifications. It was noted that 58 of the robo-signed

verifications were by Moua and the rest by other now well-known Wells Fargo robo-signers

including China Brown, Kennerty and Anne Neeley. As demonstrated herein, the Company has

employed this same fraudulent business model across virtually every county in every state

(employing judicial foreclosures) across the country.

92. As of the date this action was filed, May 13, 2011, the Board has been hostile to this

action, rendering a pre-suit demand futile because they actively participated in this concerted action



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to obtain the financial and social benefits of such positions for themselves and to enrich and further

the personal and business interests of all defendants identified herein. As a result of defendants’

wrongful acts, the Company has suffered and continues to be exposed to severe damage to its

reputation, goodwill and its ability to conduct future operations, and has been exposed to millions (or

billions) of dollars in potential liability for violating federal and state laws and regulations.

93. A majority of the Board or all of its members has demonstrated, as alleged herein,

that a pre-suit demand would have been futile. In fact, the Board has already, in substance, rejected

a demand and shareholder proposal by shareholders to conduct comprehensive independent internal

review of the Company’s mortgage servicing procedures, among the requested relief sought by this

action. See ¶149. For this reason alone, among others alleged herein, the entire Board has

particularly articulated that it could not consider a pre-suit demand in a disinterested fashion and will

not take action to comprehensively investigate the conduct alleged herein or remedy material

weaknesses in the Company’s internal controls unless forced to through litigation:

(a) A majority of the Board, in particular defendant Stumpf, have a strong

likelihood of liability for the claims alleged herein, including knowing of reckless misrepresentations

on October 12, 2010, October 20, 2010 and November 5, 2010 concerning the Company’s mortgage

servicing processing and procedures. ¶¶107, 110-113, 117-118.

(b) The Board, or a majority of them, refused to implement a moratorium on

foreclosures even after the Company admitted that its foreclosure affidavits, in judicial foreclosure

states, failed to meet legal requirements and would have to be re-submitted. ¶¶16, 107, 110-111,

114, 117.

(c) The Board and the relevant Committees of the Board responsible for the

overall risk management of the Company permitted the Company and in particular, defendants

Stumpf and Atkins, to file materially false Sarbanes-Oxley certifications falsely stating that they

each had evaluated the Company’s disclosure controls and determined that they were effective when

in truth each of the individual defendants, including a majority of the Board, knew or deliberately

disregarded that the Company had in fact designed flawed processes and procedures, including the

Company’s Foreclosure Matrix system. Prior to the issuance of the statements and filings with the



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SEC, the Company employees testified under oath in substance that a “Foreclosure Matrix” system

and the Company’s policies and procedures encouraged and in fact required Wells Fargo employees

to falsely attest in affidavits filed with the court to facts to which they did not have personal

knowledge. ¶¶84-85, 87.

(d) The Board has already rejected institutional shareholder requests and

shareholder proposal that, in light of alleged and admitted robo-signing, the Audit Committee

conduct a comprehensive and independent review of the Company’s mortgage servicing practices.

¶¶54, 119-122. Instead, the Board recommended generally that shareholders vote against a

shareholder proposal that would have required such a review. ¶149. The Board’s basis for rejection

and recommendation to vote against the proposal was that such an investigation would distract it

from coordinating with regulatory investigators. The Board knew and acknowledged, however, that

the regulatory investigation were limited to only a “sample” of Company loan files. Id.

(e) The Company, through its Board and executives, from 2007 to the present

(referred to as the “Relevant Period”), has permitted the Company to take positions in investigations

concerning its servicing mortgage procedures, in particular, the Office of the United States Trustee,

which according to its Executive Director, Clifford White III, is responsible for investigating

possible foreclosure improprieties, which amount to stonewalling and refusing to cooperate with

inquiries and requests for documents, which were designed to determine the cause and impact of

robo-signing at Wells Fargo and other lenders. ¶¶165-166.

(f) The Board or a majority of its members has demonstrated during the Relevant

Period that they will permit the Company to take litigation positions of denial of wrongdoing,

including permitting the Company to design processes solely for the purpose of concealing unlawful

predatory conduct, the purpose of which was to take advantage of the economically vulnerable. This

is evidenced by findings of fact and conclusions of law after trial in Gutierrez, 730 F. Supp. 2d at

1124, which exposed the Company to $200 million judgment. ¶¶187-189.

(g) The Board with knowledge that Stumpf and Atkins had caused the Company

to misrepresent to the public and shareholders that Wells Fargo's servicing processes and procedures

were sound, and issue false denials of robo-signing, nevertheless approved millions of dollars in



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incentive awards to Stumpf and Atkins crediting, among other things their risk management and

credibility with the investment community. ¶¶150-152.

(h) Similarly, the Board, or a majority of its members, has permitted the

Company to design, implement and execute practices that would have the effect of encouraging its

employees to steer qualified loan applicants into subprime loans resulting in consent order and a fine

of $85 million. ¶¶174-175.

SUBSTANTIVE ALLEGATIONS

94. On April 21, 2010 the Company issued a press lease entitled “WELLS FARGO

REPORTS $2.5 BILLION IN NET INCOME” which stated in relevant part:

Wells Fargo & Company reported diluted earnings per common share of $0.45 and net income of $2.5 billion for first quarter 2010.

“Once again the resiliency and advantages of Wells Fargo’s diversified business model proved themselves in a difficult business environment, even as we continued to make smooth progress with our industry’s largest merger, our integration with Wachovia,” said Chairman and CEO John Stumpf.

95. On May 7, 2010 the Company filed its Form 10-Q for the period ending March 31,

2010. The Form 10-Q repeated the 1Q10 financial results reported in the Company’s April 21, 2010

press release. Under “Financial Review,” the 1Q10 stated in relevant part:

Our vision is to satisfy all our customers’ financial needs, help them succeed financially, be recognized as the premier financial services company in our markets and be one of America’s great companies. . . . All of our business segments contributed to the strong earnings results in first quarter 2010.

Our company earned $2.5 billion in first quarter 2010, or $0.45 diluted earnings per common share. This earnings performance is an example of how our business model is capable of producing solid results in different stages of the economic cycle.

96. The May 7, 2010 Form 10-Q also included a section describing the Company’s

internal controls and assured Wells Fargo shareholders that defendants Stumpf and Atkins had

evaluated the Company’s disclosure controls and had declared them effective:

As required by SEC rules, the Company’s management evaluated the effectiveness, as of March 31, 2010, of the Company’s disclosure controls and procedures. The Company’s chief executive officer and chief financial officer participated in the evaluation. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2010.



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97. The 1Q10 also included the certification of defendant Stumpf regarding the adequacy

of the Company’s internal controls over financial reporting:

I, John G. Stumpf, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010, of Wells Fargo & Company;

* * *

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; [and]

* * *

(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation . . . .

* * *

5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.

98. Additionally, the 1Q10, Note 10, included a report on “Guarantees and Legal

Actions.” However, under Legal Actions, the Company did not report any litigation or

investigations concerning its fraudulent foreclosure practices, nor did the Company disclose the

known fact that certain of its employees had already testified under oath that Wells Fargo’s



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foreclosure practices and policies permitted and in fact encouraged the robo-signing of foreclosure

documents. The testimony of several of its vice president would later lead to more in-depth

investigation and exposure to additional liability, including the wide-spread use of robo-signing.

99. On July 21, 2010 the Company issued a press release entitled “WELLS FARGO

REPORTS NET INCOME OF $3.06 BILLION; UP 20% FROM PRIOR QUARTER.” In addition

to reporting strong financial results for the quarter, defendants caused or recklessly permitted the

Company to falsely claim that it had in fact supported a regulatory environment that separated

consumer protections and prudent risk management:

Wells Fargo & Company reported diluted earnings per common share of $0.55 for second quarter 2010 compared with $0.45 for first quarter 2010 and $0.57 for second quarter 2009. Net income was $3.06 billion for second quarter 2010 compared with $2.55 billion in first quarter 2010 and $3.17 billion in second quarter 2009. For the six months ended June 30, 2010, the Company’s net income was $5.6 billion, or $1.00 per share, compared with $6.2 billion, or $1.13 per share, a year ago.

* * *

“Having long supported a legal and regulatory environment that promotes consumer protections, financial reporting transparency and clarity, as well as prudent risk management, we support the general principles inherent in the financial reform bill, as they are consistent with how Wells Fargo operates. We remain concerned that some aspects of regulatory reform may have unintended negative impacts for America’s financial system, consumers and businesses.”

100. On August 9, 2010, the Company filed its Form 10-Q for the period ending June 30,

2010 with the SEC. The Form 10-Q repeated the 2Q10 financial results reported in the Company’s

July 21, 2010 press release and again failed to disclose ongoing actions. Though not individually

material to the Company’s bottom-line, each section revealed material deficiencies within the

Company’s internal controls, which ultimately hurt shareholders and homeowners. Instead, under

“Controls and Procedures” the 2Q10 falsely stated that defendants Stumpf and Atkins had evaluated

the Company’s controls and that they were in fact effective:

As required by SEC rules, the Company’s management evaluated the effectiveness, as of June 30, 2010, of the Company’s disclosure controls and procedures. The Company’s chief executive officer and chief financial officer participated in the evaluation. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2010.



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101. The Company’s August 9, 2010 Form 10-Q also included the Sarbanes-Oxley

certifications by defendants Stumpf and Atkins quoted above in ¶97.

Widespread Robo-Signing Begins to be Publicly Known – Wells Fargo Denies Having Participated

102. In August and September 2010, the news organizations began to publicize evidence

that had been discovered as part of foreclosure actions brought by banks. For example, on

September 22, 2010, a Wall Street Journal article, entitled “GMAC Spotlight on Robo-Signer,”

discussed some of the evidence supporting claims that robo-signing had become a routine part of the

lending institutions’ foreclosure processes. The article detailed specific events and deposition

testimony provided by Jeffrey Stephan and Beth Cottrell, employees of GMAC Mortgage Co. and

Chase Home Mortgage, respectively, wherein they each admitted during depositions taken in late

2009 and 2010, to signing thousands of affidavits purportedly in support of foreclosure proceedings

without even verifying the truth or accuracy of the facts stated in the affidavits:

This week, mortgage-servicing giant GMAC Mortgage Co. halted foreclosures in 23 states due to questions about documents signed by one of its robo-signers, Jeffrey Stephan.

Until now, Mr. Stephan was an anonymous middle manager whose job is to sign affidavits, assignments of mortgages and other documents that establish a bank’s ownership of a mortgage, thus giving the bank the right to foreclose.

* * *

In two sworn depositions given by Mr. Stephan over the last 10 months, he said that assistants brought as many as 500 documents a day to this desk at GMAC’s office in Fort Washington, Pa. Some months, he would sign more than 10,000 documents related to home foreclosures. By signing the documents, he was stating that he had personally reviewed the details of each case.

The problem is, according to depositions Mr. Stephan gave in December and June, he didn’t really look at each case. In fact, he assumed that all the details were correct, and just signed off on each one.

* * *

Now, lenders have begun withdrawing the affidavits signed by Mr. Stephan, thereby ending dozens of foreclosure proceedings across Florida, Maine and Texas. Many lawyers who represent borrowers in foreclosure have argued that the banks trying to repossess these homes don’t have the standing to do so, and are seeking to block the actions.

On Monday, GMAC confirmed that it suspended foreclosure sales and evictions in 23 states so that it can investigate its foreclosure procedures.



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* * *

Ally Financial Inc., GMAC’s parent company, said Mr. Stephan is still working there and admitted there had been irregularities.

Other servicers, as well, have been questioned over their practices. On May 17, Ice Legal, the Royal Palm Beach, Fla.-based law firm that first deposed Mr. Stephan last December, took a sworn deposition from Beth Cottrell, another robo-signer. Working as an operations specialist for Chase Home Mortgage, a division of J.P. Morgan Chase & Co., she said she regularly signed off on about 18,000 foreclosure affidavits and other documents each month, without ever personally reviewing the files associated with the loans.

103. On or around October 1, 2010, it was reported that in an email to Housing Wire,

Wells Fargo spokesman Jason Menke wrote as follows: “‘Wells Fargo’s policies, procedures and

practices satisfy us that the affidavits we sign are accurate. We audit, monitor and review our

affidavits under controlled standards on a daily basis. We will stand by our affidavits and if we find

an error we will take the appropriate action.’”

104. On October 2, 2010, the dailyfinance.com published an article entitled “Robo-

Signing: Documents Show Citi and Wells Also Committed Foreclosure Fraud” that described the

fraudulent process noting that the alleged conduct of submitting false affidavits to a court was

“fraud” and that Wells Fargo was continuing in its denial of the practice. The article disclosed

publicly the details of the Kennerty deposition discussed above at ¶87, infra.:

Documents submitted to a court are supposed to be true as submitted. As an attorney, if I file with a court a document in which I swore that I personally verified the information contained within the document is true, but I didn’t actually do that, I’d get in real trouble. It’s simple: That’s fraud in the eyes of the court.

GMAC, JPMorgan Chase (JPM), Bank of America (BAC) and One West Bank employees routinely sign hundreds of documents without verifying what they’re signing. Those documents are then submitted to courts as if the documents were true, to enable the banks to foreclose on delinquent properties. Wells Fargo (WFC) and Citigroup’s (C) CitiMortgage told The New York Times their employees do not engage in similar practices. Yet, new evidence I’ve found shows they have. At deadline, I was still awaiting a response from CitiMortgage.

Confusion at Wells Fargo

For example, in one case I reviewed, Herman John Kennerty of Wells Fargo gave a deposition describing the department he oversees for Wells Fargo. It’s a department dedicated to simply signing documents. Kennerty testified that he signs 50 to 150 documents a day, verifying only the date on each. Although the foreclosure in that case was upheld, Wells Fargo did not dispute Kennerty’s signing practices.



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105. On October 5, 2010, the Attorney General of the State of North Carolina wrote to

Wells Fargo’s General Counsel James Strother communicating his concern about reports of robo-

signing in the mortgage servicing industry and growing evidence that the practice was not isolated to

GMAC Mortgage Co., JPMorgan Chase, and Bank of America. The Attorney General of North

Carolina implored Wells Fargo to review its practices in North Carolina and submit a report

identifying its practice for the execution of affidavits in North Carolina:

James M. Strother General Counsel Wells Fargo & Company

* * *

Dear Mr. Strother: This office has received information indicating that it is a prevalent practice in the mortgage servicing industry for employees of mortgage entities to routinely sign off on large number of affidavits without personal knowledge of the accuracy of the affidavits’ contents. . . . We are very concerned about these practices. The use of unverified affidavits to obtain legal relief strikes at the heart of the integrity of the legal process and could constitute a fraud upon the court. Moreover, submitting defective affidavits could

possibly result in homeowners losing their homes to foreclosure without a valid

underlying basis.

106. The letter also requested Wells Fargo to promptly do an internal review and provide

North Carolina evidence of its good faith effort to verify documentation before instituting

foreclosure actions in North Carolina. Wells Fargo, reportedly in a December 2, 2010 letter from

Wells Fargo’s Deputy, David Moskowitz, communicated Wells Fargo’s rejection of the request

citing its apparent cooperation with the authority.

107. On October 12, 2010, defendants caused the Company to issue a press release again

falsely reaffirming that its foreclosure affidavits were indeed accurate and that Wells Fargo not be

instituting a moratorium to investigate its processes as some of the other banks had done:



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Wells Fargo Affirms Affidavit Accuracy

Confirms no foreclosure moratorium

In response to media inquiries we recently received, we are confirming that Wells Fargo has no plans to initiate a foreclosure moratorium. Our affidavit procedures and daily auditing demonstrate that our foreclosure affidavits are accurate.

As always, as a standard business practice, we continually review and reinforce our policies and procedures. This includes conducting additional reviews before loans go to foreclosure sale. If we find an error or if an improvement is needed, we take action. We are satisfied that our foreclosure affidavit process is sound.

108. On October 13, 2010, the Star Tribune published an article entitled “Rapid-fire

foreclosures alleged at Wells Fargo” that also summarized the vast amount of evidence

demonstrating that Wells Fargo engaged in the fraudulent business practice of robo-signing,

notwithstanding the Company’s repeated denials:

Wells Fargo & Co. mortgage loan processors have acknowledged signing hundreds of foreclosure documents a day without verifying the information’s accuracy, calling into question the bank’s assertion that it did not make errors in documents used to evict people from their homes.

A Wells Fargo vice president in South Carolina said she signed “anywhere between 300 to 500” foreclosure documents over a two-hour period each day, without verifying much of the information. A second Wells Fargo employee said he signed 50 to 150 foreclosure documents a day, verifying only the dates.

* * *

Banks face accusations that they were in such a rush to process foreclosures that they were “robo signing” hundreds or thousands of foreclosure affidavits a day without verifying their accuracy.

Since allegations of foreclosure impropriety emerged late last month, Wells Fargo has stood virtually alone among the giant mortgage lenders in insisting it did nothing wrong.

On Wednesday, the San Francisco-based bank issued a statement saying its affidavit procedures and daily auditing demonstrate that its foreclosure affidavits are accurate.

* * *

Wells Fargo said it has no plans to initiate a foreclosure moratorium. “Our records show that Wells Fargo’s foreclosure affidavits are accurate,” spokeswoman Vickee Adams said. “When we find team members that do not follow procedure, we fix whatever we’ve done incorrectly.”



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109. On October 14, 2010, the Financial Times published an article entitled “Spotlight

falls on Wells Fargo foreclosure procedures.” The article disclosed that notwithstanding Wells

Fargo’s denials about its foreclosure processes regarding the verification of mortgage foreclosure

documents, a Company Vice President of Loan Documentation, Moua, had sworn in a deposition

(taken months before the robo-signing phenomenon began to receive public notoriety) that she

signed as many as 500 foreclosure-related documents each day without verifying the contents of the

documents other than her name and title. The October 14, 2010 Financial Times article which made

this information more generally known is set forth below:

Spotlight falls on Wells foreclosure procedures

Wells Fargo, the second-biggest US mortgage servicer, has remained above the fray in recent weeks as banks have come under scrutiny for rubber-stamping thousands of mortgage documents without verifying their contents as required by law.

Unlike Bank of America, JPMorgan Chase and GMAC, Wells Fargo has not halted foreclosures and has maintained that it has no problems with its procedures.

Yet, a sworn deposition by one of its loan documentation officers suggests otherwise. Xee Moua said she signed as many as 500 foreclosure-related papers a day on behalf of the bank. Ms Moua said the only information she had verified was whether her name and title appeared correctly.

Asked whether she checked the accuracy of the principal and interest that Wells Fargo claimed the borrower owed – an important step in banks’ legal actions to foreclose – Ms Moua replied: “I do not.”

Ms Moua nevertheless signed affidavits, reviewed by the Financial Times, that said she had “personal knowledge of the facts regarding the sums of money which are due and owing to Wells Fargo”. These affidavits were used in lawsuits brought by Wells Fargo to repossess homes.

Ms Moua said it was her understanding the foreclosure documents had been reviewed by outside lawyers before reaching her.

Wells Fargo Reports 3Q10 Results and Again Falsely Denies that Wells Fargo Robo-Signed Foreclosure Documents

110. On October 20, 2010, defendants caused the Company to issue its 3Q10 financial

results in a press release. Wells Fargo emphasized that its record earnings were a direct result of its

core business, “helping customers succeed financially.” In addition to reporting its financial results,

the Company specifically denied that its servicing or foreclosure practices were unsound and stated

that it was confident in its foreclosure policies and practices:



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Wells Fargo & Company reported diluted earnings per common share of $0.60 for third quarter 2010 compared with $0.55 for second quarter 2010 and $0.56 for third quarter 2009. Net income was $3.34 billion in third quarter 2010 compared with $3.06 billion in second quarter 2010 and $3.24 billion in third quarter 2009. For the nine months ended September 30, 2010, net income was $8.95 billion, or $1.60 per common share, compared with $9.45 billion, or $1.69 per common share, a year ago.

“Record earnings in the third quarter reflect the success of the Wachovia merger and the benefits of Wells Fargo’s steady commitment to our core business of helping customers succeed financially,” said Chairman and CEO John Stumpf . . . .

“With respect to recent industry-wide foreclosure issues, there are several important facts to know about Wells Fargo. Foreclosure is always a last resort, and we work hard to find other solutions through multiple discussions with customers over many months before proceeding to foreclosure. We are confident that our practices, procedures and documentation for both foreclosures and mortgage securitizations are sound and accurate. For these reasons, we did not, and have no plans to, initiate a moratorium on foreclosures.”

111. On the same day, October 20, 2010, the Company held a conference call for analysts

and investors. The call was hosted by defendant Stumpf. During the call he and other Wells Fargo

officers, including defendant Atkins, again assured investors and shareholders that Wells Fargo’s

mortgage servicing processes, specifically on foreclosures, were sound and that the questions in the

industry regarding robo-signing, at least with respect to Wells Fargo, were “overstated” and

“misrepresented in the marketplace” and that the Company’s internal control processes already in

place ensured reliability and accuracy:

[Stumpf:] Now, I know we have all been hearing in recent months about business practices within our industry. I am proud of Wells Fargo’s adherence to a culture of doing what is right for customers, which not incidentally benefits [our] team members, our communities, and our shareholders in the long run. For us, this means doing the hard work early and building processes that adhere to our standards as a Company. This is as true in our approach to merger integration as it is to our day-to-day business operations.

Let me quickly give you my views on the latest topic, related to mortgage foreclosures and repurchases. Howard will address this topic in more detail later on the call, but there are a couple of important points I want to make up front.

First, foreclosure is always a last resort . . . .

Second, we are confident that our practices, procedures, and documentation for both foreclosures and mortgage securitizations are sound and accurate. Third, we did not and do not plan to initiate a foreclosure moratorium.



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112. In addition to defendant Stumpf’s comments, defendant Atkins repeated the false

assertion that the Company’s loan servicing policies were sound, falsely stating that the document

reviewers and affidavit signer was the same team member:

[Atkins:] Then finally, we are confident in our foreclosure and mortgage securitization policies, practices, and controls and the adequacy of our repurchase reserve.

* * *

With that, let me shift to give you an overview of the foreclosure and mortgage securitization issues. These are issues obviously that are very important to consumers, mortgage investors, and shareholders. But we believe that these issues have been somewhat overstated and, to a certain extent, misrepresented in the marketplace. I would like to be clear here on how they impact Wells Fargo specifically.

* * *

Second, our foreclosure and securitization policies, practices, and controls in our view, are sound. To help ensure accuracy over the years, Wells Fargo has built control processes that link customer information with foreclosure procedures and documentation requirements.

Our process specifies that affidavit signers and reviewers are the same team member, not different people, and affidavits are properly notarized. Not all banks in our understanding do it this way. If we find errors, we fix them; and we fix them as promptly as we can.

We ensure loans in foreclosure are assigned to the appropriate party as necessary to comply with local laws and investor requirements, and legal documents related to securitizations are sound, and appropriate transfers of ownership were made.

* * *

[Nancy Bush – NAB Research – Analyst:] John, I have just got one question for you. . . . [T]here have been a couple of instances detailed in the press of Wells Fargo robo-signing etc. And there is a great deal of speculation that at some point you guys are going to cave and we are going to find out all this bad stuff about your foreclosure procedures.

* * *

[Stumpf:] I don’t know how other companies do it, but in our Company our process has – the affidavit signer and reviewer are the same team member. And we believe these issues – they are properly notarized.

And if we find an error we will fix it. I mean that is just – humans do make errors, but that is what our process is. One reviewer, one signer, same person.



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113. On October 20, 2010, the Company filed its 3Q10 Quarterly Supplement in a filing

with the SEC. The 3Q10 Quarterly Supplement also reiterated false statements concerning the

soundness of the Company’s foreclosure practices:

3Q10 Quarterly Supplement

* * *

3Q10 Overview

• Record earnings – $3.34 billion net income, up 9%

* * *

• We remain confident in our foreclosure and mortgage securitization policies, practices and controls and adequacy of repurchase reserve

Overview of foreclosure and mortgage securitization

I. Foreclosure is a last resort

* * *

• Since January 2009, we have helped over 556,000 borrowers avoid foreclosure through active and trial loan modifications and have forgiven $3.5 billion of principal. During that same time period, we completed fewer than 230,000 owner-occupied foreclosure sales

* * *

II. Our foreclosure and securitization documentation processes are sound

• Our process specifies that affidavit signers and reviewers are required to be the same team members, and affidavits are properly notarized. If we find errors we fix them

• We ensure appropriate documents for loans in foreclosure are assigned in compliance with local laws and investor requirements

• Legal documents related to securitizations appropriately transferred ownership

• We have implemented additional reviews on pending foreclosures, prioritized to ensure the review is complete before the loans go to foreclosure sale

Wells Fargo Finally Admits to Robo-Signing and Identifies 55,000 Affidavits Which Would be Re-Filed

114. On October 27, 2010, the defendants caused the Company to issue a press release

admitting that the Company’s foreclosure processes had in fact failed to adhere to its reported

procedures and that it had permitted certain of its foreclosure documents to be submitted to the



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courts without the appropriate or authentic signatures on the foreclosure documents – effectively

committing a fraud upon the court. The Company admitted that it would have to re-do more than

55,000 foreclosure affidavits:

Wells Fargo Provides Update on Foreclosure Affidavits And Mortgage Securitizations

Wells Fargo & Company is continuing its ongoing efforts to monitor and assess its foreclosure affidavit procedures. “We understand the concern over foreclosure procedures on the part of homeowners in these difficult economic times, and want to do everything we can to assure that the procedures we have in place provide Wells Fargo borrowers and others with confidence that foreclosure proceedings we initiate are done appropriately,” said Mike Heid, co-president of Wells Fargo Home Mortgage.

The company believes it has designed an appropriate process for the generation of foreclosure affidavits. Completed foreclosure affidavits that are submitted to the courts are signed and notarized as one of the last steps in a multi-step process intended to comply with applicable law and ensure the quality of customer and loan data in foreclosure proceedings. This customer and loan data is derived directly from the company’s official systems of record. This data and its transmission to external foreclosure counsel are subject to quality controls, and audits are performed to assure the quality, accuracy, and reliability of these automated systems.

As part of the company’s review of its foreclosure affidavit procedures, the company has identified instances where a final step in its processes relating to the execution of the foreclosure affidavits (including a final review of the affidavit, as well as some aspects of the notarization process) did not strictly adhere to the required procedures. The issues the company has identified do not relate in any way to the quality of the customer and loan data; nor does the company believe that any of these instances led to foreclosures which should not have otherwise occurred.

Out of an abundance of caution and to provide an additional level of assurance regarding its processes, the company is electing to submit supplemental affidavits for approximately 55,000 foreclosures which are pending before courts in 23 judicial foreclosure states. November 2010, subject to state and local requirements. If the company is unable to complete an individual court filing by the designated court review date, it will request a court extension to assure the file contains a supplemental affidavit before the judge rules on the case. Additionally, Wells Fargo reaffirms that it does not plan to institute a moratorium on foreclosure sales.

“At Wells Fargo, foreclosure is a last resort,” Heid said. “In September 2010, borrowers who have completed foreclosure were on average 16 months delinquent on their payments. When all options have been exhausted, we believe foreclosures should not be delayed.”

115. On October 21, 2010, Oppenheimer Equity Research issued a report entitled, Wells

Fargo Core Earnings Power Stronger Than What's Visible on the Surface. The report credited the



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Company and defendant Stumpf for “convincing” shareholders that its foreclosure servicing

processes and procedures did not include robo-signing, but instead were “sound”:

Wells Fargo

Core Earnings Power Stronger Than What’s Visible on the Surface

Wells posted a solid quarter with stable core operating trends in most of the key operating line items. The reported $0.60 contained about $0.08 of benefit from reserve releases, and thus the “core” was just a bit shy of our $0.56 estimate. The reason for the shortfall was from the pre-provision earnings (PPE) as the net charge-offs improved more than expected. We are shaving back our revenue and earnings assumptions a bit. However, we continue to think that the company has earnings power of over $4 per share in 2012 as the current results are dragged down not just by credit costs, but also merger costs and operating costs related to dealing with credit costs. We continue to recommend the stock.

■ We feel that WFC did a very convincing job on the call arguing that their foreclosure procedure and documentation processes are sound and that the mortgage put-back issues are contained and manageable for them.

Wells Fargo Criticized by Government Officials for Lying About Foreclosure Processes and False Assurances that Robo-Signing Did Not Occur at Wells Fargo

116. A day after the Company’s October 27, 2010 press release, Ohio Attorney General

Richard Cordray (“Cordray”) characterized Wells Fargo’s plan to submit supplemental affidavits for

approximately 55,000 foreclosures as more of a “band-aid” than a cure. Cordray stated that Wells

Fargo and several other banks clearly don’t recognize the seriousness of submitting fraudulent

testimony to a court of law, and cannot seriously hope to rectify this problem by filing supplemental

affidavits purportedly “out of an abundance of caution.” Cordray also remarked to Bloomberg News

that Wells Fargo had specifically represented to him and potentially other State Attorney Generals,

that it did not have robo-signing issues. He added that he believed, as others had opined, that the

submission of false affidavits constituted a fraud on the Court. Excerpts of Cordray’s comments are

set forth below:

We spoke with Wells Fargo when we started our investigation before the 50 state attorneys general got together. They assured us that they were different from the other financial firms. They did not have these robo-signing problems, now we’re finding they’re acknowledging they have those problems in at least 55,000 cases. So they’re going to become a focus of our investigation and we’re going to have to take steps as needed to clean this up.

* * *



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I think that these firms need to understand the financial exposure they’ve created for themselves. They have defrauded our courts. They now think they can just say “oops, give us that evidence back and will give you better evidence.” The courts are not going to take kindly to that…The courts are going to impose [sanctions and penalties on] the firms and they need to look to a global solution to this problem, where they put it behind them by reaching agreements with lenders and investors to clean up this problem immediately.

* * *

I think they should be halting foreclosures in every case where they know they’ve submitted fraudulent evidence. They should not simply try to put in new evidence and think the courts are going to accept that – that’s not going to be good enough. These courts are going to give sanctions, they’re upset at being defrauded having evidence presented to them as good when it was not good and it’s not going to be enough for them just to say “Oh we made a mistake. Here are some different evidence.”

* * *

Well, there’s new evidence as to Wells Fargo. There was a deposition of one of their employees, taken in South Carolina, that demonstrates a similar problem to the Jeff Stefan GMAC problem from his deposition in Maine. The boiler room of these operations are pretty unappetizing affairs. These people did not know what they were signing but they were ordered to go ahead and sign anyway. It’s not just individual people who signed affidavits that are flawed, it is a business model based on fraud that was designed to cut corners in the foreclosure process, because these firms continue to think they play a different set of rules than every other party in every other court case in this country, and they don’t and they’re going to find that out.

117. On November 5, 2010, the Company filed its Form 10-Q for the period ending

September 30, 2010. The Form 10-Q was signed by Richard Levy, Executive Vice President and

Controller, Principal Accounting Officer. In addition to setting forth the Company’s financial

condition, the Company, through the Form 10-Q, again admitted what it had initially denied without

basis, i.e., that its foreclosure affidavits, at least 55,000 of them, would have to be re-filed because

they failed to meet certain requirements:

We believe we have designed an appropriate process for generating foreclosure affidavits and documentation for both foreclosures and mortgage securitizations. . . . Although we have identified instances where final steps relating to the execution of foreclosure affidavits (including a final review of the affidavit, as well as some aspects of the notarization process) were not strictly adhered to, we do not believe that any of these instances related to the quality of the customer and loan data or led to foreclosures which should not have otherwise occurred. Accordingly, we do not plan on instituting a moratorium on foreclosure sales. Nevertheless, out of an abundance of caution and to provide an additional level of assurance regarding our processes, we recently announced that we are submitting supplemental affidavits for approximately 55,000 foreclosures pending before courts in 23 judicial foreclosure states.



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118. In addition, the Company explained the wide-ranging financial exposure that it could

or would materialize if in fact it was found that Wells Fargo had failed under its servicing

agreements with loan originators to perform its obligations, or any acts, omissions which involve

malfeasance, bad faith gross negligence or reckless disregard to the Company’s duties. The

Company explained that Wells Fargo would not be indemnified for such conduct. In addition, the

Company explained that Wells Fargo may not be reimbursed for costs associated with the re-

execution or re-delivery of documents in connection with foreclosures or litigation costs associated

with borrowers who challenge the validity of foreclosures, especially if they relate to securitized

loans. Moreover, if certain documents required for foreclosure are missing, or defective, the

Company could be obligated to repurchase the loans:

If our review causes us to re-execute or redeliver any documents in connection with foreclosures, we will incur costs which may not be legally or practically reimbursable to us to the extent they relate to securitized mortgage loans. Further, if the validity of any foreclosure action is challenged by a borrower, whether successfully or not, we may incur significant litigation costs, which may not be reimbursable to us to the extent they relate to securitized mortgage loans. In addition, if a court were to overturn a foreclosure due to errors or deficiencies in the foreclosure process, we could have liability to a title insurer that insured the title to the property sold in foreclosure. Any such liability may not be reimbursable to us to the extent it relates to a securitized mortgage loan.

Recent press reports have also contained speculation that foreclosures of securitized mortgage loans could be impaired or delayed due to the manner in which the loans are assigned to the securitization trusts. One cited concern is that securitization loan files may be lacking mortgage notes, assignments or other critical documents required to be produced on behalf of the trust. Although we believe that we delivered all documents in accordance with the requirements of each securitization involving our mortgage loans, if any required document with respect to a securitized mortgage loan sold by us is missing or defective, as discussed above we would be obligated to cure the defect or to repurchase the loan.

* * *

We may be terminated as a servicer or master servicer, be required to repurchase a mortgage loan or reimburse investors for credit losses on a mortgage loan, or incur costs and other liabilities if we fail to satisfy our servicing obligations, including our obligations with respect to mortgage loan foreclosure actions.

We act as servicer and/or master servicer for mortgage loans included in securitizations and for unsecuritized mortgage loans owned by investors. . . . If we commit a material breach of our obligations as servicer or master servicer, we may be subject to termination if the breach is not cured within a specified period of time following notice, which can generally be given by the securitization trustee or a specified percentage of security holders, causing us to lose servicing income. In



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addition, we may be required to indemnify the securitization trustee against losses from any failure by us, as a servicer or master servicer, to perform our servicing obligations . . . .

We may incur costs if we are required to, or if we elect to re-execute or re-file documents or take other action in our capacity as a servicer in connection with pending or completed foreclosures. We may incur litigation costs if the validity of a foreclosure action is challenged by a borrower. If a court were to overturn a foreclosure because of errors or deficiencies in the foreclosure process, we may have liability to a title insurer of the property sold in foreclosure. These costs and liabilities may not be legally or otherwise reimbursable to us, particularly to the extent they relate to securitized mortgage loans. In addition, if certain documents required for a foreclosure action are missing or defective, we could be obligated to cure the defect or repurchase the loan. We may incur liability to securitization investors relating to delays or deficiencies in our processing of mortgage assignments or other documents necessary to comply with state law governing foreclosures. . . .

Large Institutional Shareholders from New York City Pension Funds, AFL-CIO Demand that the Wells Fargo Board of Directors Take Action to Investigate Loan Servicing Deficiencies to Help Restore Credibility

119. On November 9, 2010, John C. Liu, New York City Comptroller, as trustee of Fire

New York City employee pension funds, submitted a shareholder proposal to the Company for

inclusion within its Definitive Proxy Statement related to the Company’s annual meeting of

stockholders to be held during 2011.

Ms. Laurel A. Holschuh Corporate Secretary Wells Fargo & Company

* * *

I write to you on behalf of the Comptroller of the City of New York, John C. Liu. The Comptroller is the custodian and a trustee of the New York City Employees’ Retirement System, the New York City Fire Department Pension Fund, the New York City Teachers’ Retirement System, and the New York City Police Pension Fund, and custodian of the New York City Board of Education Retirement System (the “Systems”). The Systems’ boards of trustees have authorized the Comptroller to inform you of their intention to present the enclosed proposal for the consideration and vote of stockholders at the company’s next annual meeting.

120. The proposal to the Board suggested by Liu and the Systems’ Boards of Trustees

outlined the reported deficiencies and the scope of investigations that warranted immediate action by

the Board and particularly the Audit Committee:

Wells Fargo & Company is a leading originator, securitizer and servicer of home mortgages.



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Reports of widespread irregularities in the mortgage securitization, servicing and foreclosure practices at a number of large banks, including missing or faulty documentation and possible fraud, have exposed the Company to substantial risks.

* * *

Fitch Ratings warned the “probes may highlight weaknesses in the processes, controls and procedures of certain [mortgage] servicers and may lead to servicer rating downgrades.”

* * *

The Audit Committee of the Board of Directors is responsible for ensuring the Company has adequate internal controls governing legal and regulatory compliance. With the Company’s mortgage-related practices under intensive legal and regulatory scrutiny, we believe the Audit Committee should act proactively and independently to reassure shareholders that the Company’s compliance controls are robust.

Resolved, shareholders request that the Board have its Audit Committee conduct an independent review of the Company’s internal controls related to loan modifications, foreclosures and securitizations, and report to shareholders, at reasonable cost and omitting proprietary information, its findings and recommendations by September 30, 2011.

The report should evaluate (a) the Company’s compliance with (i) applicable laws and regulations and (ii) its own policies and procedures; (b) whether management has allocated a sufficient number of trained staff; and (c) policies and procedures to address potential financial incentives to foreclose when other options may be more consistent with the Company’s long-term interests.

121. On November 10, 2010, the American Federation of Labor and Congress of Industrial

Organizations (“AFL-CIO”) wrote to Wells Fargo as a current shareholder of more than 3,000 shares

of the Company’s stock, submitting a proposal for the inclusion in the 2011 proxy materials. The

request was similar to that of the New York City Systems seeking a resolution that the Company

prepare a report on its internal controls over mortgage servicing operations, including among other

things, procedures to prevent legal defects in the processing of affidavits related to foreclosure.

Laurel A. Holschuh Corporate Secretary Wells Fargo & Company

* * *

On behalf of the AFL-CIO Reserve Fund (the “Fund”), I write to give notice that pursuant to the 2010 proxy statement of Wells Fargo & Company (the “Company”), the Fund intends to present the attached proposal (the “Proposal”) at the 2011 annual meeting of shareholders (the “Annual Meeting”). The Fund requests



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that the Company include the Proposal in the Company’s proxy statement for the Annual Meeting.

The fund is the beneficial owner of 3817 shares of voting common stock (the “Shares”) of the Company. . . .

The Proposal is attached. I represent that the Fund or its agent intends to appear in person or by proxy at the Annual Meeting to present the Proposal.

* * *

RESOLVED: Shareholders recommend that Wells Fargo & Company (the “Company”) prepare a report on the Company’s internal controls over its mortgage servicing operations, including a discussion of:

• the Company’s participation in mortgage modification programs to prevent residential foreclosures,

• the Company’s servicing of securitized mortgages that the Company may be liable to repurchase, and

• the Company’s procedures to prevent legal defects In the processing of affidavits related foreclosure.

122. The AFL-CIO proposal included the following supporting statement regarding the

reasons for its proposal specifying that an investigation and report would provide the transparency

necessary to improve the now-tarnished representation of the Company, especially in light of the

large number of homes Wells Fargo had already foreclosed upon:

Our Company has foreclosed on a large number of home mortgages. According to an estimate by SNL Financial, our Company has $17.5 billion of its residential mortgage loans in foreclosure, and another $36.4 billion of mortgages it services for other lenders in foreclosure as of June 30, 2010. (Wall Street Journal, J.P. Morgan, BofA, Wells Fargo Tops in Foreclosed Home Loans, October 12, 2010.)

. . . We believe that our Company should provide greater disclosure of its efforts to prevent foreclosures by its participation in government mortgage modification programs such as the Home Affordable Modification program as well as our Company’s proprietary mortgage modifications.

* * *

In our view, our Company’s shareholders will benefit from a report that provides greater transparency regarding our Company’s mortgage servicing operations. We believe that such a report will also help improve our Company’s corporate reputation by disclosing its responses to the foreclosure crisis, including its efforts to modify mortgage to prevent foreclosures, to properly service investor-owned mortgages, and to comply with state foreclosure laws.



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123. On November 20, 2010, The Charlotte Observer published an article entitled “N.C.

AG questions Wells Fargo foreclosure practices” reporting that the North Carolina Attorney

General’s Office sent a letter to Wells Fargo & Co. expressing concerns about its foreclosure

practices after the San Francisco bank said it’s resubmitting affidavits in 23 other states not including

North Carolina, a quasi-judicial state. The article noted, in particular, that submission of false

affidavits could be considered a fraud on the court, which in turn could expose the Company to

significant liability. The article stated, in part:

The bank said it’s filing supplemental documents in 23 states, including South Carolina, where judges sign off on foreclosures. North Carolina - a “quasi-judicial” state where clerks of court review affidavits in foreclosure cases - is not among those states.

“If you maintain confidence in your proceedings, I question why you would believe it necessary to re-file affidavits,” Adam Hartzell, senior deputy attorney general for consumer protection, wrote in the letter.

“If Wells Fargo intends to take such measures in other states, I do not understand why Wells Fargo would not also take similar action in North Carolina,” he added.

The use of unverified affidavits could be considered a fraud upon the court, he wrote. In particular, he said, Wells could be asserting that it attempted to modify loans for struggling borrowers without having a valid basis for those assertions.

Bank of America and other lenders have halted foreclosure sales as they review their procedures. Wells has not.

“This further heightens the concerns of the state of North Carolina,” Hartzell wrote.

The United States Senate Launches Investigations and Holds Hearings on Banks’ Signing and Filing of False Affidavits – Several U.S. Government Officials Weigh In

124. On November 18, 2010 the Senate held a hearing on the robo-signing scandal.

During the hearing, Sen. Sherrod Brown (D-Ohio) drew a correlation between robo-signing and the

predatory lending practices which many of the large banks had participated in and which led to the

subprime crisis stating, “The predatory practices of the mortgage servicing industry are remarkably

similar to the predatory practices that led to the subprime crisis. The biggest mortgage servicers

have poorly maintained, lost, or forged documentation. They ignored the interests of homeowners in



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exchange for outsized profits. . . . Indifference, foreclosed homes, and broken neighborhoods

shouldn’t be a formula for record profits.”

125. In written testimony presented at the hearing, John Walsh (“Walsh”), Acting

Comptroller of the Currency noted that completed foreclosures had increased an astonishing 53.6%

over the last year as well as other forfeiture actions including new short sales, which increased an

amazing 126.5% and new deed-in-lieu-of-foreclosures actions rose 55% over the last year. Walsh

identified certain of the issues relating to the operational breakdowns at certain banks and stated that

his investigation was only limited to a “sample” of individual loan files only where foreclosures

have either been initiated or completed:

To date, four large national bank servicers [including Wells Fargo] have publicly acknowledged procedural deficiencies in their foreclosure processes. The lapses that have been reported represent a serious operational breakdown in foreclosure governance and controls that we expect national banks to maintain. . . . At the same time, we initiated plans for intensive, on-site examinations of the eight largest national bank mortgage servicers. Through these examinations we are independently testing the adequacy of governance over their foreclosure processes to ensure foreclosures are completed in accordance with applicable legal requirements and that affidavits and claims are accurate. As part of our examinations we also are reviewing samples of individual loan files where foreclosures have either been initiated or completed to test the validity of bank self- assessments. . . .

126. Walsh added that the scope of the investigation which had initially centered upon

improper attestations of accuracy, had broadened to include the accuracy of all of the underlying

information regarding the foreclosure process:

The concerns about improper foreclosure practices initially centered on two issues that deal with the documentation required to effect foreclosure actions. The first issue involves requirements under some state laws for individuals to sign affidavits attesting personal knowledge of the accuracy and completion of required documentation essential to a valid foreclosure proceeding. The second issue is whether, in similar situations where required by state law, individual notaries may have violated procedures in notarizing documentation by, for example, notarizing the documents after they had been signed, rather than in the presence of the individual signing the affidavit. As the situation has evolved, concerns have broadened to include the accuracy of all information underlying the foreclosure process, and the physical possession and control over documents necessary to foreclose on a home. Our examinations are investigating all of these issues.

(Emphasis added in original.)

127. Elizabeth A. Duke, Member of the Board of Governors of the Federal Reserve

System (“FRB”) submitted written testimony on the significance of the information in the



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foreclosure documentation and the affidavits that must be executed, including whether the bank

agent that is advocating foreclosure action is legally entitled to bring the action:

Foreclosure documentation typically requires an assertion that the agent bringing forth the action has the legal right to foreclose and that the loan is in default. The document filing would contain details of the transaction and the amounts owed. Problems associated with so-called robo-signing of documents include documents signed by individuals who do not have personal knowledge of the facts being asserted, documents signed by individuals who are not properly authorized to make such claims or assertions, notarized signatures on documents that were not executed in the presence of a notary or that have other violations of proper notary procedures, and documents that contain inaccurate amounts, dates, or other facts. Lenders and servicers are responsible for ensuring that the person who signs a document is duly authorized and has appropriate knowledge obtained from a review of the case. In addition, servicers and lenders are responsible for ensuring the accuracy of records and the facts recited in the documents.

128. Phyllis Caldwell, Chief of Homeownership Preservation Office, U.S. Department of

the Treasury wrote that the mortgage servicers should be held accountable:

The reports of “robo-signing”, faulty documentation and other improper foreclosure practices by mortgage servicers are unacceptable. If servicers have failed to comply with the law, they should be held accountable.

129. David H. Stevens, Assistant Secretary of Housing – Federal Housing Administration

Commissioner, U.S. Department of Housing and Urban Development wrote that the conduct denied

then admitted by Wells Fargo was a continuation of a decade of bad behavior and abuse was indeed

shameful:

Of course, as I mentioned, the job is far from over. Recent reports of faulty documentation and fraudulent affidavits in the foreclosure process remind us that we continue to pay a very steep price for nearly a decade of abuses and bad behavior.

As Secretary Donovan has said, the notion that many of the very same institutions that helped cause this housing crisis may well be making it worse is not only frustrating – it’s shameful.

* * *

Servicers that are not meeting FHA’s standards will face the full strength of our enforcement authority, including the levying of fines, sanctions, and if necessary, stripping institutions of their FHA approval. Prior to the start of FHA’s current servicer review process, which began in May 2010, an evaluation of the practices of one servicer yielded over $700,000 in administrative fees.

130. Adam J. Levitin (“Levitin”), Associate Professor of Law, Georgetown University

Law Center, explained that the key issue is the falsification of court documents that could, as



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discussed by other commentators, be found to be a fraud on the court. In the case of Wells Fargo

and certain other banks, which filed false affidavits in multiple courts around the country, actions by

governing bodies could result in substantial liability for:

Perhaps the most disturbing problem that has appeared in foreclosure cases is evidence of counterfeit or altered documents and false notarizations. To give some examples, there are cases in which multiple copies of the “true original note” are filed in the same case, with variations in the “true original note;” signatures on note alleges that have clearly been affixed to documents via Photoshop; “blue ink” notarizations that appear in blank ink; counterfeit notary seals; backdated notarizations of documents issued before the notary had his or her commission; and assignments that include the words “bogus assignee for intervening asmts, whose address is XXXXXXXXXXXXXXXX.”

Class Actions and Individual Borrower Actions Continue to Accumulate Exposing Wells Fargo to Increasing Potential Liability – Courts Issue Stern Orders Regarding Affidavits Against Wells Fargo

131. In Reginald Jones v. USA, N.A., No. 09-2904 RWT (D. Md.), Wells Fargo Bank,

N.A. is named as defendant in a class action seeking damages of not less than $100,000,000. The

action asserts class members had their due process rights violated by the submission of fraudulent

(and robo-signed) affidavits by Wells Fargo and other defendants in connection with certain

foreclosure proceedings in violation of Maryland procedural rules and/or fundamental fairness.

132. Additionally, in November and December of 2010, a New York court state judge,

pursuant to a previous Administrative Order issued by the Chief Judge, denied 127 foreclosure cases

including numerous ones initiated by Wells Fargo because “there have been numerous instances

alleged as to “robo” signing of documents and a failure to attest to the accuracy of documents in

mortgage foreclosure proceedings.” Specifically, the order in Wells Fargo Bank, N.A. v. Joseph

Gennarelli, et al., Index No. 31089/09 (Supreme Court – State of New York, I.A.S. Term, Part

XXIV – Suffolk County, Dec. 1, 2010), which was issued by Judge Cohalan in all 127 cases

including numerous ones involving Wells Fargo, stated in full part:

Pursuant to an Administrative Order of the Chief Judge, dated October 20, 2010, all residential mortgage foreclosure actions require an affirmation from the attorney representing the plaintiff/lender/bank, as stated in the affirmation attached to this order, that he/she has inspected all documents.

The plaintiff [Wells Fargo] is also directed on any future application to provide a copy of this Court’s order, the prior application/motion papers and an updated affidavit of regularity/merit from the plaintiff/lender/bank’s representative that he/she has reviewed the file in this case and that he/she documents that all



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paperwork is correct. The plaintiff/lender/bank’s representative shall also provide in said affidavit of regularity her/his position, length of service, training, educational background and a listing of the documents and financial records reviewed substantiating the review of the amounts owed. The affidavit should also include that she/he has personally reviewed both the mortgage and the note and any assignments for accuracy.

The plaintiff bears the burden of proof in a summary judgment proceeding and judgment will only be awarded when all doubt is removed as to the existence of any triable issue of fact. Under the present circumstances, where there have been numerous instances alleged as to “robo” signing of documents and a failure to attest to the accuracy of documents in mortgage foreclosure proceedings, the plaintiff must prove its entitlement to foreclose on a mortgage as a matter of law by establishing the regularity and accuracy of the financial documentary evidence submitted and the Court will be scrutinizing all documents for accuracy.

133. In December 2010, another Wells Fargo employee, Alden Berner (“Berner”), testified

in an action captioned that his role as a “legal process specialist” was limited to verifying facts on

foreclosure documents – and only to verify facts on the documents. However, in his deposition

Berner testified that he used a computer only to verify the name of the lender or loan servicer against

the name of the investment entity that owns the loan. Berner testified that he does not know who

places the information in the system he relies on, and does not review any attachments in the

complaints and that he did not review the actual loan document itself, nor did he review the note or

the mortgage. Further, Berner did not look at any documents that actually transfer or assign

ownership of any note or mortgage. Thus, the verifications he was submitting to courts was not

really verifying anything. Berner and others who submit verifications without actually verifying

anything have become known as “robo verifiers.”

134. On December 20, 2010, the New Jersey court system, sua sponte, took a number of

steps which according to a press release issued that day (available at

http://www.judiciary.state.nj.us/superior/press_release.htm), were intended “to protect the integrity

of filings of foreclosures in New Jersey.” On that day, the New Jersey courts issued two orders. As

the press release stated, in the first order to show cause, a judge directed “six lenders and service

providers who have been implicated in irregularities in connection with their foreclosure practices to

show cause why the processing of uncontested residential mortgage foreclosure actions they have

filed should not be suspended.” See In the Matter of Residential Mortgage Foreclosure Pleading

and Document Irregularities, No. F-059553-10, Superior Court of New Jersey, Chancery Division-



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General Equity Part, Mercer County. Wells Fargo was among the six lenders given such notice. In a

second order,3 a judge “issued an administrative order that details the scope of the problem and

orders certain procedures to safeguard the mortgage foreclosure documentation preparation and

filing process.” The press release notes that this second order requires “24 lenders and service

providers who have filed more than 200 residential foreclosure actions in 2010 to demonstrate

affirmatively that there are no irregularities in their handling of foreclosure proceedings, via

submissions” to a special master.

135. The New Jersey court’s administrative order specifically called out Wells Fargo as

one of six institutions with “robo-signing activities” that the order noted were “pervasive” problems

in foreclosure and bankruptcy filings in state courts. As the order put it, “‘[r]obo-signers’ are

mortgage lender/servicer employees who sign hundreds – in some cases thousands – of affidavits

submitted in support of foreclosure claims without any personal knowledge of the information

contained in the affidavits. ‘Robo-signing’ may also refer to improper notarizing practices or

document backdating.”

136. With respect to Wells Fargo, the New Jersey Administrative Order stated:

Wells Fargo employees have admitted in depositions to signing documents without verifying the information contained therein. In one foreclosure case, a loan administration manager stated that he signed 50 to 150 documents per day, including assignments, declarations, and affidavits related to foreclosure. He signed the documents without checking the information and relied on employees of another department to ensure the accuracy of the information. The manager and others with the same position could sign as a Vice President of Loan Documentation for purposes of executing loan documents but were not otherwise officers of the company.

In another foreclosure case, an employee stated that she spent about two hours a day signing between 300 to 500 documents. She held the title of Vice President of Loan Documentation for the purpose of signing the documents. She did not review or have personal knowledge of the facts in the documents, relying on outside counsel or an employee in the foreclosure department for accuracy. Similarly, for a bankruptcy case in Texas, a Wells Fargo employee stated that she sometimes did not personally review documents before signing, relying on the expertise of the document preparer.

3 See In the Matter of Residential Mortgage Foreclosure Pleading and Document Irregularities, Administrative Order 01-2010 (Dec. 10, 2010).



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(Footnotes omitted.)

The New York City Comptroller on Behalf of New York City Public Pension Funds Shareholder Again Demand Action from Wells Fargo Board of Directors Audit Committees

137. On January 6, 2011, New York City Comptroller Liu sent a letter to Wells Fargo’s

Board. He urged that the Board “take immediate, independent action to restore confidence in the

Company’s internal controls and compliance.” The letter noted management’s public comments that

the allegations of robo-signing were “overblown” were contrary to the findings of regulators, which

had begun their own investigations. “Specifically, we call on the Audit Committee . . . to conduct an

independent review of the Company’s internal controls related to loan modifications, foreclosures

and securitizations and to include a report to shareholders with findings and recommendations in the

Company’s 2011 proxy statement.” Liu stated that such a review should evaluate

(a) “the Company’s compliance with (i) applicable laws and regulations and (ii) its own policies and procedures”;

(b) “whether management has allocated a sufficient number of trained staff”; and

(c) “policies and procedures to address potential financial incentives to foreclose when other options may be more consistent with the Company’s long-term interests.” He added that “we do not consider your existing audit firm to be independent since the firm previously signed off on the Company’s internal controls.”

138. The January 6, 2011 letter addressed to the Chairman of the Audit Committee,

Nicholas G. Moore, stated as follows:

Reports in fall 2010 of widespread irregularities in the mortgage and foreclosure processes at the nation’s largest banks have exposed Wells Fargo & Company (“the Company”) to intensive legal and regulatory scrutiny. Despite management’s assurance that the concerns are overblown and will be resolved quickly, preliminary findings by top federal regulators suggest that internal control failures at the banks are in fact widespread. Moreover, according to the November report of the Congressional Oversight Panel (COP), exposed banks could suffer severe capital losses.

“As major institutional investors collectively holding $50.6 million Wells Fargo common shares, with a December 31 market value of $1.6 billion, we believe it is incumbent upon the Board of Directors to take immediate, independent action to restore confidence in the Company’s internal controls and compliance. Specifically, we call on the Audit Committee you chair to conduct an independent review of Company’s internal controls related to loan modifications, foreclosures and securitizations and to include a report to shareholders with findings and recommendations in the Company’s 2011 proxy statement.



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The requested review, the scope of which we further detail below, is already the subject of a shareholder resolution submitted by New York City Pension Funds for the Company’s spring 2011 annual meeting. However, we believe the urgency and seriousness of our concerns require more immediate Board action.

The Congressional Oversight Panel’s November 2010 Report

In its November 2010 oversight report, the COP characterized the view expressed by management at the large banks that “current concerns over foreclosure irregularities are overblown, reflecting mere clerical errors that can and will be resolved quickly” as the best case scenario. In its worst case scenario, the COP said severe capital losses could destabilize exposed banks and potentially threaten overall financial stability.

* * *

In addition, banks could be vulnerable to litigation from homeowners who claim to have suffered improper foreclosures. “Even the prospect of such losses,” states the COP report, “could damage a bank’s stock price or its ability to raise capital.” The report also states that, as a result of flawed documentation, borrowers may have been denied modifications.

The Federal Foreclosure Task Force’s Preliminary Findings

On November 23rd, a week after the COP released its report, Assistant Treasury Secretary Michael Barr informed members of the Financial Stability Oversight Council that a federal foreclosure task force investigating some of the nation’s largest mortgage servicers had found “widespread” and “inexcusable breakdowns in basic controls in the foreclosure process.” . . .

Federal Reserve Governor Daniel K. Tarullo’s December 1st Congressional Testimony

Most recently, Federal Reserve Governor Daniel K. Tarullo updated the Senate Banking Committee on a related interagency examination by the four federal banking regulators. In his December 1st testimony, Mr. Tarullo said preliminary findings “suggest significant weaknesses in risk-management, quality control, audit, and compliance practices as underlying factors contributing to the problems associated with mortgage servicing and foreclosure documentation.” The agencies have also found “shortcomings in staff training.”

Mr. Tarullo testified that “foreclosures are costly to all parties,” noting their harmful impacts on homeowners, lenders, mortgage investors and local governments, as well as the broader economy. “It just cannot be the case,” he said, “that foreclosure is preferable to modification for a significant proportion of mortgages where the deadweight costs of foreclosure, including a distressed sale discount, are so high.”

Among the possible explanations for the prominence of foreclosures, he cited “lack of servicer capacity to execute modifications, purported financial incentives for servicers to foreclose rather than modify, . . . and conflicts between primary and secondary lien holders.” Although servicers are required to act in the best interests of the investors who own the mortgages, an October 2010 study provides compelling empirical support for the view that perverse incentives and conflicts of



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interest lead banks to foreclose upon or deny loan modifications to homeowners improperly.

Federal Regulators and Congress May Impose Structural Reforms

Given the range of problems associated with mortgage servicing, including the degree to which foreclosure has been preferred to mortgage modification, Mr. Tarullo testified that “structural solutions may be needed.” In addition to possible regulatory actions, recent House and Senate Hearings on the foreclosure crisis raise the prospect of additional legislative remedies.

For example, a bill introduced by Reps. Brad Miller (D-NC) and Keith Ellison (D-MN) in April 2010, before the recent round of hearings, would address one of the conflicts cited by Mr. Tarullo. The Mortgage Servicing Conflict of Interest Elimination Act would bar servicers of first loans they do not own from holding any other mortgages on the same property. Enactment of the legislation would presumably force the Company, which is one of four banks that control more than half the mortgage servicing market and more than half the home equity loan market, to divest its servicing businesses or its interests in home mortgages.

Scope and Timeline for Independent Review

In light of the above, we urge the Audit Committee to immediately retain independent advisors to review the Company’s internal controls related to loan modifications, foreclosures and securitizations. The review should evaluate (a) the Company’s compliance with (i) applicable laws and regulations and (ii) its own policies and procedures; (b) whether management has allocated a sufficient number of trained staff; and (c) policies and procedures to address potential financial incentives to foreclose when other options may be more consistent with the Company’s long-term interests. For the purposes of this review, we do not consider your existing audit firm to be independent since the firm previously signed off on the Company’s internal controls.

The Audit Committee should disclose its findings and recommendations in the Company’s 2011 proxy statement. In the event that the Committee is unable to complete its review prior to the filing of the Company’s 2011 proxy statement, we request that the Committee provide a preliminary report in the proxy statement detailing the scope of the review, the firm(s) retained to perform it, any preliminary findings and remedial steps taken to date, and the expected completion date.

* * *

As you know, the Audit Committee is ultimately responsible for the Company’s compliance with legal and regulatory requirements as well as its internal controls over financial reporting. The Committee, however, appears to be relying on management’s internal review and assurance that any foreclosure irregularities are mere clerical errors that will be resolved quickly, while awaiting the outcome of various investigations by federal and state authorities.

It may be too late to protect the Company from the worst consequences of any past compliance failures. It is nonetheless critical that the Audit Committee take immediate, independent action to assess the Company’s mortgage-related internal controls and address any underlying weaknesses. This will help to prevent future compliance failures and restore the confidence of shareholders, regulators, legislators and mortgage market participants.



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(Footnote omitted.)

139. The letter was signed by Liu, New York City Comptroller, New York City Pension

Funds; Denise Nappier, Connecticut State Treasurer, Connecticut Retirement Plans and Trust Funds;

William R. Atwood, Executive Director, Illinois State Board of Investment; William E. Mabe,

Executive Director, Illinois State Universities Retirement System; Thomas D. DiNapoli, New York

State Comptroller, New York State Common Retirement Fund; Janet Cowell, North Carolina State

Treasurer, North Carolina Retirement Systems; and Ted Wheeler, Oregon State Treasurer, Oregon

State Treasury.

140. On January 9, 2011, the New York City Office of the Comptroller issued a press

release titled “$432 Billion Pension Fund Coalition Demands Bank Directors Immediately Examine

Foreclosure Practices.” The coalition included the five New York City Pension Funds and the

Connecticut Retirement Plan and Trust Funds, of Illinois State Universities Retirement Systems, the

New York State Common Retirement Fund, the North Carolina Retirement Systems and the Oregon

Public Employees Retirement Fund:

$432 BILLION PENSION FUND COALITION DEMANDS BANK DIRECTORS IMMEDIATELY EXAMINE FORECLOSURE PRACTICES

. . . A coalition of seven major public pension systems called on the boards of directors of Bank of America (NYSE: BAC), Citigroup (NYSE: C), JP Morgan Chase (NYSE: JPM), and Wells Fargo (NYSE: WFC) to immediately undertake independent examinations of the banks’ mortgage and foreclosure practices.

Led by New York City Comptroller John C. Liu on behalf of the five NYC Pension Funds, the coalition also includes the Connecticut Retirement Plans and Trust Funds, the Illinois State Board of Investment, the Illinois State Universities Retirement System, the New York State Common Retirement Fund, the North Carolina Retirement Systems, and the Oregon Public Employees Retirement Fund.

The coalition of pension funds called for the banks’ Audit Committees to launch independent examinations of their loan modification, foreclosure, and securitization policies and procedures.

“This will help to prevent future compliance failures and restore the confidence of shareholders, regulators, legislators and mortgage markets participants,” the coalition advised in its letter.

The coalition members’ insistence on immediate action reflects the urgency of their concerns over mishandled mortgages.



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141. The January 9, 2011 press release went further, describing that the Board could no

longer pretend that these false affidavits were simple paperwork failures and placed oversight

responsibility directly on the shareholders of the Audit Committee, again demanding that they

conduct comprehensive and independent reviews:

“The banks’ boards cannot continue to pretend the foreclosure mess is the result of technical glitches and paperwork errors” Comptroller Liu said. “There is a fundamental problem in their procedures that endangers not just homeowners, but shareholders, and local economies. Given the risks involved, only a swift and unbiased audit can reassure shareholders that the pension funds of 700,000 working and retired New Yorkers are in safe hands. The boards of directors have no time to waste.”

The coalition represents more than $430 billion in pension fund investments, including $5.7 billion invested in the four banks.

“We don’t know exactly what the banks were doing, and we don’t know if they did it right,” New York State Comptroller Thomas P. DiNapoli said, “Millions of families have lost their homes, and the investments of the million members of the Common Retirement System have been put at risk. As investors, we need to understand what happened. A full and open examination of the procedures used to foreclose on millions of families is the only way to make sure our investments are protected and no one is ever wrongfully evicted from their home.”

Federal Reserve Governor Daniel K. Tarullo testified to the Senate Banking Committee on December 1 that the Federal Reserve’s preliminary findings on bank foreclosure procedures suggested “significant weaknesses in risk-management, quality control, audit and compliance practices as underlying factors contributing to the problems associated with mortgage servicing and foreclosure documentation.”

The Congressional Oversight Panel has estimated that banks potential mortgage liability could total $52 billion, borne largely by the four banks contacted by the pension funds. The Panel’s November 16 report, “Examining the Consequences of Mortgage Irregularities for Financial Stability and Foreclosure Mitigation,” concluded that banks could suffer disabling damage if they were found to have misrepresented the quality of loans sold for securitization and forced to reabsorb billions in troubled loans.

“The responsibility for making sure that internal controls and compliance process are in place for mortgage and foreclosure practices rests squarely with these Audit Committees,” said North Carolina State Treasurer Janet Cowell. “The recent testimonies and studies strongly suggest the need for these Audit Committees to act swiftly and objectively in conducting an independent and comprehensive review of these practices.”

The coalition of pension funds called for the banks to report the findings of their independent examinations in their 2011 proxy statements this spring. As of December 31, 2010, the coalition’s combined holdings in each bank included: 97.1 million Bank of America shares valued at $1.3 billion; 226.6 million Citigroup shares valued at $1.1 billion; 40.7 million JPMorgan Chase shares valued at $1.7 billion; and 50.6 million Wells Fargo shares valued at $1.6 billion.



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The New York City Comptroller serves as the investment advisor to, custodian and trustee of the New York City Pension Funds. The New York City Pension Funds are comprised of the New York City Employees’ Retirement System, Teachers’ Retirement System, New York City Police Pension Fund, New York City Fire Department Pension Fund and the Board of Education Retirement System. The New York City Pension Funds hold a combined 138,786,887 total shares in Bank of America Corporation (NYSE: BAC), Citigroup Inc. (NYSE: C), JPMorgan Chase & Co. (NYSE: JPM), and Wells Fargo & Company (NYSE: WFC) for a combined asset value of $1,933,160,319 as of 12/31/2010.

Defendants Cause Wells Fargo to File Its Form 10-K for the Year Ending Falsely Contending Effectiveness of Internal Controls – Potential Liability Materializes Into $1.2 Billion in Reserves

142. On January 19, 2011, the Company issued a press release entitled “WELLS FARGO

REPORTS RECORD QUARTERLY AND FULL YEAR NET INCOME; Q4 Net Income of $3.4

billion; Q4 Revenue of $21.5 billion” which stated in relevant part:

Wells Fargo & Company reported record net income of $12.4 billion, or $2.21 per diluted common share, for 2010, up from $12.3 billion, or $1.75 per share, for 2009. Fourth quarter 2010 net income was a record $3.4 billion, or $0.61 per common share, compared with $3.3 billion, or $0.60 per common share, for third quarter 2010 and $2.8 billion, or $0.08 per common share, for fourth quarter 2009. Earnings per share for fourth quarter 2009 were reduced by $0.47 for the combined dividends and deemed dividend upon redemption and full repayment of TARP preferred stock.

“In 2010 Wells Fargo saw solid growth in a variety of businesses, with record net income for the full year as well as the fourth quarter,” said Chairman and CEO John Stumpf. “As the U.S. economy showed continued signs of improvement, our diversified model continued to perform for our stakeholders, as demonstrated by growth in loans and deposits, solid capital levels and improving credit quality.”

143. On the same day the Company held a conference call for analysts and investors. The

call was hosted by defendants Stumpf and Atkins. During the call, defendant Atkins explained that

the Company had reduced the value of its Mortgage Servicing Rights (“MSR”) to reflect the higher

costs associated with residential foreclosures:

[Atkins:] Before turning to credit quality I would like to make a few points about the mortgage business on slide 8. Mortgage banking non-interest income increased $258 million in the fourth quarter. Not coincidentally we also had approximately $200 million higher operating expenses in the quarter to process all these originations – an example of our ability to modify capacity and variable expenses up and down as volume ebbs and flows.

On slide 8, for purposes of analysis, we’ve broken down mortgage fees into component parts, originations and servicing. On the origination side the total gain on origination activities was $2.5 billion in the fourth quarter, but that included $464 million provided for repurchase reserves, up $94 million from the third quarter. This addition primarily reflected an increase in loss severity projections even though unresolved repurchase demands are down again in the quarter. The $2.9 billion



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gain from origination activities was up 27% from the third quarter on a 27% increase in originations.

All in servicing revenue was $240 million in the quarter. I’m often asked where in the income statement we account for higher residential foreclosure costs. And in fact the present value of projected residential mortgage foreclosure costs is reflected in the MSR valuation, so when foreclosure expenses are projected to rise, the full higher expected costs reduce current period earnings through a reduction in the MSR.

As you can see on this slide, we reduced the value of our MSR by $143 million in the fourth quarter for higher projected servicing and foreclosure costs. We review and adjust our servicing and foreclosure cost projections within our MSR valuation each quarter and have been adding to this cost for several quarters now to reflect the current higher cost environment.

The ratio of MSRs as a percent of loan service for others was 86 basis points, up slightly from 72 basis points in the third quarter simply due to the higher mortgage rates in the quarter. But we expect we will once again be at the lower end of the peers on this metric.

144. On February 25, 2011 the Company filed its Annual Report on Form 10-K with the

SEC for the fiscal year ending December 31, 2010 (the “2010 Annual Report”). The 2010 Annual

Report repeated the financial results in the Company’s January 19, 2011 press release. With respect

to the Company’s internal controls and procedures, the 2010 Annual Report falsely stated that during

2010, the Company’s internal controls were effective:

As required by SEC rules, the Company’s management evaluated the effectiveness, as of December 31, 2010, of the Company’s disclosure controls and procedures. The Company’s chief executive officer and chief financial officer participated in the evaluation. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2010.

145. With respect to internal controls over financial reporting, the 2010 Annual Report

falsely stated that:

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Based on this assessment, management concluded that as of December 31, 2010, the Company’s internal control over financial reporting was effective.

146. The 2010 Annual Report was signed by defendants Baker, Chen, Dean, Engel,

Milligan Moore, Quigley, Runstad, Hernandez, James, McCormick, McDonald, Sanger, Stumpf and



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Swenson, and also included certifications of defendant Stumpf regarding the adequacy of the

Company’s internal controls over financial reporting substantially similar to the one referenced in

¶97 above.

147. Also buried in the Company’s 2010 Annual Report on Form 10-K was a disclosure

confirming that in addition to a multitude of lawsuits relating to its foreclosure processes, it was in

fact likely the government would initiate some form of enforcement action against the Company

related to the foreclosure document investigation and, as a result, the Company could be subject to

significant civil penalties. The Company further acknowledged that it had established a $1.2 billion

loss reserve to cover potential losses regarding its foreclosure practices. The 2010 Annual Report

provided in part:

MORTGAGE FORECLOSURE DOCUMENT LITIGATION Seven purported class actions and several individual borrower actions related to foreclosure document practices were filed in late 2010 and in early 2011 against Wells Fargo Bank, N.A. in its status as mortgage servicer. The cases have been brought in state and federal courts. Of the individual borrower cases, the majority are filed in state courts in California and Ohio. Two other class actions were filed against Wells Fargo Bank, but Wells Fargo is named as a defendant as corporate trustee of the mortgage trust and not as a mortgage servicer. The actions generally claim that Wells Fargo submitted “fraudulent” or “untruthful” affidavits or other foreclosure documents to courts to support foreclosures filed in the state. Specifically, plaintiffs allege that Wells Fargo signers did not have personal knowledge of the facts alleged in the documents and did not verify the information in the documents ultimately filed with courts to foreclose. Plaintiffs attempt to state legal claims ranging from wrongful foreclosure to deceptive practices to fraud and seek relief ranging from cancellation of notes and mortgages to money damages.

On December 20, 2010, the New Jersey Supreme Court, the New Jersey Administrative Office of the Courts, and the Superior Court of New Jersey for Mercer County jointly began an action against Wells Fargo and other large mortgage servicing companies in state court in New Jersey. This action seeks to enjoin pending foreclosures and sales and to require servicers to certify and prove compliance with new foreclosure procedures in New Jersey, or be held in contempt of court. Wells Fargo has filed its initial response to the New Jersey action.

MORTGAGE RELATED REGULATORY INVESTIGATIONS Several government agencies are conducting investigations or examinations of various mortgage related practices of Wells Fargo Bank. The investigations relate to two main topics, (1) whether Wells Fargo may have violated fair lending or other laws and regulations relating to mortgage origination practices; and (2) whether Wells Fargo’s practices and procedures relating to mortgage foreclosure affidavits and documents relating to the chain of title to notes and mortgage documents are adequate. With regard to the investigations into foreclosure practices, it is likely that one or more of the government agencies will initiate some type of enforcement action against Wells Fargo, which may include civil money penalties. Wells Fargo continues to provide information requested by the various agencies.



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Wells Fargo Board File Rule 14(a) Proxy Material Urging Shareholders to Vote Against Proposals that Would Require the Board to Conduct an Internal Investigation

148. On March 21, 2011, the Company filed its 14(a) Proxy Statement with the SEC. The

members of the Board, defendants, caused the Company to include Liu’s stockholder proposal styled

ITEM 9 – STOCKHOLDER PROPOSAL REGARDING A REPORT ON INTERNAL CONTROLS

FOR MORTGAGE SERVICING OPERATIONS in its Proxy Statement filed with the SEC on

March 21, 2011 in connection with the annual meeting of stockholders scheduled for May 3, 2011

which stated:

The New York City Employees’ Retirement System, the New York City Fire Department Pension Fund, the New York City Teachers’ Retirement System, the New York City Police Pension Fund, and the New York Board of Education Retirement System as joint filers, c/o The City of New York, Officer of the Comptroller, 1 Centre Street, Room 629, New York, NY 10007, which in the aggregate held 16,622,857 shares of common stock on November 17, 2010, intend to submit a resolution to stockholders for approval at the annual meeting. The proponents’ resolution and supporting statement are printed below.

Supporting Statement and Resolution

Whereas: Wells Fargo & Company is a leading originator, securitizer and servicer of home mortgages.

Reports of widespread irregularities in the mortgage securitization, servicing and foreclosure practices at a number of large banks, including missing or faulty documentation and possible fraud, have exposed the Company to substantial risks.

According to these reports, the specialized needs of millions of troubled borrowers overwhelmed bank operations that were designed to process routine mortgage payments. As the New York Times (10/24/10) reported, “computer systems were outmoded; the staff lacked the training and numbers to respond properly to the flood of calls. Traditional checks and balances on documentation slipped away as filing systems went electronic, and mortgages were packaged into bonds at a relentless pace.”

Morgan Stanley estimated as many as 9 million U.S. mortgages that have been or are being foreclosed may face challenges over the validity of legal documents.

Mortgage servicers are required to act in the best interests of the investors who own the mortgages. However, a foreclosure expert testified before the Congressional Oversight Panel that perverse financial incentives lead servicers to foreclose when other options may be more advantageous to both homeowner and investor.

Fifty state attorneys general opened a joint investigation and major federal regulators initiated reviews of bank foreclosure practices, including the Federal Reserve’s examination of the largest banks’ policies, procedures, and internal



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controls related to loan modifications, foreclosures and securitizations to determine whether systematic weaknesses led to improper foreclosures.

Fitch Ratings warned the “probes may highlight weaknesses in the processes, controls and procedures of certain [mortgage] servicers and may lead to servicer rating downgrades.”

“While federal regulators and state attorneys general have focused on flawed foreclosures,” reported Bloomberg (10/24/10), “a bigger threat may be the cost to buy back faulty loans that banks bundled into securities.”

Mortgage repurchases cost Bank of America, Citigroup, JP Morgan Chase and Wells Fargo $9.8 billion in total as of September 2010, according to Credit Suisse. Goldman Sachs estimated the four banks face potential losses of $26 billion, while other estimates place potential losses substantially higher.

The Audit Committee of the Board of Directors is responsible for ensuring the Company has adequate internal controls governing legal and regulatory compliance. With the Company’s mortgage-related practices under intensive legal and regulatory scrutiny, we believe the Audit Committee should act proactively and independently to reassure shareholders that the Company’s compliance controls are robust.

Resolved, shareholders request that the Board have its Audit Committee conduct an independent review of the Company’s internal controls related to loan modifications, foreclosures and securitizations, and report to shareholders, at reasonable cost and omitting proprietary information, its findings and recommendations by September 30, 2011.

The report should evaluate (a) the Company’s compliance with (i) applicable laws and regulations and (ii) its own policies and procedures; (b) whether management has allocated a sufficient number of trained staff; and (c) policies and procedures to address potential financial incentives to foreclose when other options may be more consistent with the Company’s long-term interests.

149. The Company’s Board responded to the above stockholder proposal stating it had

already done a review, and that government agencies were also doing a review of a sample of

documents and an additional internal review might be a “distraction.”:

Position of the Board

The Board recommends a vote AGAINST this proposal, which is identified as Item 9 on the enclosed proxy card, for the following reasons:

• The Company has already undertaken comprehensive internal self-assessments and reviews of our mortgage servicing processes and practices including controls related to loan foreclosures and securitizations;

• Our federal banking regulators have conducted independent in-depth examinations of the Company’s mortgage servicing policies, procedures and internal controls, including detailed reviews of samples of our mortgage loan files; and



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• An additional independent review would not constitute an effective use of the Company’s resources and could distract our efforts to cooperate with reviews undertaken by our federal banking regulators.

* * *

Therefore, the Board believes that the extensive reviews of mortgage servicing processes and procedures that the Company’s internal audit function, as well as its operational risk group, have each recently completed, coupled with the separate independent examinations recently conducted by the federal banking regulators, are sufficient to address the concerns raised in the proposal. As such, our Board believes that an additional independent review of the Company’s mortgage servicing operations would not be an efficient use of the Company’s resources and could distract the Company’s efforts to cooperate with the reviews being made by its regulators.

Accordingly, the Board recommends that you vote AGAINST this proposal.

After Rejecting Shareholder Demands for an Interim Review the Board Awards Executives $53 Million in Incentive Awards

150. Notwithstanding the Board’s recommendation to shareholders to vote AGAINST the

proposals made by institutional investors that the Audit Committee conduct an internal investigation

into the Company’s foreclosure practices, the Board and specifically the Human Resources

Committee voted to approve millions in bonuses to defendants Stumpf, Atkins and other Company

executives. For fiscal year 2010, the Company paid its top five executives (including defendants

Stumpf and Atkins) over $53,435,000 in compensation which included $9,935,000 in bonuses

(Annual Incentive Awards) and $28,000,000 in Long-Term Equity Incentive Award:

Named Executive Base Salary

($)

Annual

Incentive

Award ($)

Long-Term Equity

Incentive Award

($)

Total 2010

Pay ($)

John G. Stumpf 2,800,000 3,300,000 11,000,000 17,100,000

Howard I. Atkins 1,700,000 1,700,000 5,500,000 8,900,000

David A. Hoyt 2,000,000 2,000,000 6,500,000 10,500,000

Mark C. Oman 2,000,000 1,500,000 5,000,000 8,500,000

Carrie L. Tolstedt 1,700,000 1,235,000 5,500,000 8,435,000

TOTAL 9,200,000 9,935,000 28,000,000 53,435,000

151. According to the Company’s Proxy Statement, these executives (including defendants

Stumpf and Atkins), were awarded bonuses for 2010 based on, among other things, the strong



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financial performance of the Company for 2010 which included “record” net income for 2010 and by

exceeding target performance measures which included exceeding an EPS of at least $1.43.

152. The executive compensation for these executives was recommended by the Human

Resources Committee of the Board (in its capacity as the compensation committee) which included

defendants, Sanger (Chair), Chen, Engel, James, McCormick and McDonald and approved by the

Board. The Board and the Human Resources Committee remarkably explained that the basis for the

awards were in part due to defendants Stumpf and Atkins’ guidance of the Company through the

financial crisis, “risk management” and “credibility with the investment community.” The Board,

through its comments and recommendations in the proxy statement, virtually endorsed the

misrepresentations of both defendants Stumpf and Atkins concerning the submission of phony

affidavits, further evidencing their inability to consider a demand in a disinterested fashion:

In determining 2010 annual incentive awards for the named executives, the HRC considered information pertaining to the factors described above under “Compensation Program Governance.”

* * *

Stumpf. In making the 2010 annual incentive compensation award determination for Mr. Stumpf, the HRC considered, among other factors, the following:

• the Company’s record 2010 net income of $12.4 billion, EPS of $2.21 . . . ;

• the Company’s relative performance versus the Financial Performance Peer Group . . .;

* * *

• positioning the Company for future success following the financial crisis and regulatory reform;

* * *

• the Board’s assessment of Mr. Stumpf’s success in achieving his qualitative performance objectives.

. . . In 2010, Mr. Stumpf’s leadership was critical to achieving success in strategic imperatives related to merger integration and cultural assimilation, enhanced relationships with government agencies, communities and investors, and financial success without jeopardizing our risk management principles. Upon consideration of Mr. Stumpf’s performance, including the factors set forth above, the HRC recommended, and the Board approved, a 2010 annual incentive compensation award for Mr. Stumpf of $3.3 million.



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* * *

Atkins. In making the 2010 annual incentive compensation award determination for Mr. Atkins, the HRC considered, among other factors, the following:

* * *

• the recommendations of Mr. Stumpf based on his assessment of Mr. Atkins’ 2010 performance.

Mr. Atkins continued to provide the Company excellent financial leadership in 2010. His leadership was a significant factor in the Company’s financial success and rigorous stewardship of our stockholders’ investments. Mr. Atkins also was a primary spokesman for the Company with investors and his relationships and credibility with the investment community were important for the Company’s financial success in 2010. Upon consideration of Mr. Atkins’ performance, including the factors set forth above, the HRC approved a 2010 annual incentive compensation award for Mr. Atkins of $1.7 million.

Investigations by the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision – MERS Also Enters Into Consent Order

153. On March 31, 2011, Wells Fargo entered into a Stipulation and consent to the

Issuance of a Consent Order issued by the OCC. The OCC found that the Company had engaged in

unsound or unsafe banking practices related to its residential loan servicing and mortgage

foreclosure processing.

154. On April 13, 2011, the results of the OCC’s review and findings were made public in

the fully-executed Consent Order. This Consent Order states “[t]he OCC has identified certain

deficiencies and unsafe or unsound practices in residential mortgage servicing and in the Bank’s

initiation and handling of foreclosure proceedings.”

155. With respect to the Company’s Wells Fargo Bank, N.A., the OCC found as follows:

(1) The Bank is among the largest servicers of residential mortgages in the United States, and services a portfolio of 8,900,000 residential mortgage loans. During the recent housing crisis, a substantially large number of residential mortgage loans serviced by the Bank became delinquent and resulted in foreclosure actions. The Bank’s foreclosure inventory grew substantially from January 2009 through December 2010.

(2) In connection with certain foreclosures of loans in its residential mortgage servicing portfolio, the Bank:

(a) filed or caused to be filed in state and federal courts affidavits executed by its employees or employees of third-party service providers making various assertions, such as ownership of the mortgage note and



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mortgage, the amount of the principal and interest due, and the fees and expenses chargeable to the borrower, in which the affiant represented that the assertions in the affidavit were made based on personal knowledge or based on a review by the affiant of the relevant books and records, when, in many cases, they were not based on such personal knowledge or review of the relevant books and records;

(b) filed or caused to be filed in state and federal courts, or in local land records offices, numerous affidavits or other mortgage-related documents that were not properly notarized, including those not signed or affirmed in the presence of a notary;

(c) litigated foreclosure proceedings and initiated non-judicial foreclosure proceedings without always ensuring that either the promissory note or the mortgage document were properly endorsed or assigned and, if necessary, in the possession of the appropriate party at the appropriate time;

(d) failed to devote sufficient financial, staffing and managerial resources to ensure proper administration of its foreclosure processes;

(e) failed to devote to its foreclosure processes adequate oversight, internal controls, policies, and procedures, compliance risk management, internal audit, third party management, and training; and

(f) failed to sufficiently oversee outside counsel and other third-party providers handling foreclosure-related services.

156. On behalf of Wells Fargo, the Stipulation – which included a waiver by the Company

to contest the validity of the Consent Order and its findings – was entered into by Wells Fargo

through its “duly elected and acting Board of Directors” and signed by David Hoyt, Wells Fargo’s

Senior Vice President, Wholesale Banking, Michael Loughlin, Wells Fargo’s Senior Vice President,

Chief Risk Officer; Marc C. Oman, Senior Vice President of Home and Consumer Finance; Stumpf,

CEO and Chairman of the Board; and Carrie Tolstedt, Senior Executive Vice President Community

Banking.

157. Though the Consent Order required the Company to begin submitting its progress

report and remediation plans to the OCC within 90 days of the date of the Consent Order. It has

been reported that none of those deadlines have been met and haven been extended.4

4 On September 2, 2011, counsel for lead plaintiffs wrote to counsel for Wells Fargo and the individual defendants requesting confirmation of reports that Wells Fargo had not yet supplied the OCC with action plans required by the March 31, 2011 Consent Order. Counsel for the individual defendants responded that she could not confirm nor deny the reports.



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158. Under the terms of the Consent Order, Wells Fargo agreed to, among other things, (i)

to establish a Compliance Committee to monitor and coordinate the Company’s compliance with the

Consent Order; (ii) to create a comprehensive remediation plan to achieve compliance with the

Consent Order; (iii) to submit an acceptable compliance plan to ensure that its mortgage servicing

and foreclosure operations, including loss mitigation and loan modification, comply with legal

requirements, OCC supervisory guidance, and the terms of the Consent Order; (iv) to submit a plan

to ensure appropriate controls and oversight of the Company’s activities with respect to the MERS;

(v) to take certain other actions with respect to its mortgage servicing and foreclosure operations;

and (vi) to conduct a foreclosure review through an independent consultant on certain residential

foreclosure actions. The OCC reserved the right to seek civil penalties against the Company.

159. Even though the Board and the individual defendants had long known of the

Company’s inadequate procedures, policies, resources, and controls pertaining to its default loan

management functions, they did not take corrective action until forced to do so pursuant to the OCC

Consent Order. Further, they have failed to compensate the Company for damages caused by their

wrongdoing and have refused to seek remedies against anyone else who was responsible for the

misconduct alleged herein.

160. On April 13, 2011, Wells Fargo also entered into a Consent Order with the Board of

Governors of the Federal Reserve5 reciting, in part:

WHEREAS, the Bank and the OCC have entered into a consent order to address areas of weakness identified by the OCC in residential mortgage loan servicing, Loss Mitigation,6 foreclosure activities, and related functions;

WHEREAS, in the consent order, the OCC has made findings, which the Bank neither admitted nor denied, that there were unsafe or unsound practices with respect to the manner in which the Bank handled various foreclosure and related activities. The OCC’s findings also raised concerns that WFC did not adequately assess the potential risks associated with these activities; . . .

5 In the Matter of Wells Fargo & Company, No. 11-025-B-HC, 1 (Apr. 13, 2011).

6 The Federal Reserve Consent Order defines “Loss Mitigation” to collectively mean “foreclosure proceedings and loss mitigation activities involving nonperforming residential mortgage loans, including activities related to special forbearances, repayment plans, modifications, short refinances, short sales, case-for-keys, and deeds-in-lieu of foreclosure.”



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161. The Federal Reserve Consent Order requires that the Board ensure the Company’s

compliance with the OCC Consent Order and to submit to the Federal Reserve within 60 days:

(a) “a written plan to strengthen the board’s oversight of WFC’s enterprise-wide risk management (“ERM”), internal audit, and compliance programs concerning the residential mortgage loan servicing, Loss Mitigation, and foreclosure activities conducted through the Bank”;

(b) “an acceptable written plan to enhance its ERM program with respect to its oversight of residential mortgage loan servicing, Loss Mitigation, and foreclosure activities and operations”;

(c) “an acceptable written plan to enhance its enterprise-wide compliance program (“ECP”) with respect to its oversight of residential mortgage loan servicing, Loss Mitigation, and foreclosure activities and operations”; and

(d) “an acceptable written plan to enhance the internal audit program with respect to residential mortgage loan servicing, Loss Mitigation, and foreclosure activities and operations.”

162. On April 13, 2011, MERSCORP and MERS entered into a stipulation and consent to

the issuance of a Consent Order with the OCC, the Board of Governors, the FDIC, the OTS and

FHFA. The agency findings included that MERS and MERSCORP engaged in unsafe and unsound

practices that exposed them and the examined members, including Wells Fargo, to unacceptable

operational, compliance and legal reputational risks. The stipulation was signed by each of the

members of the Board of Directors of MERS, including Joe Jackson, MERS Board member, and

Senior Vice President of Wells Fargo. The MERS Consent Order made the following findings of

fact:

(1) MERS is a wholly-owned subsidiary of MERSCORP. MERSCORP’s shareholders include federally regulated financial institutions that own and/or service residential mortgages, including Examined Members, and other primary and secondary mortgage industry participants.

(2) MERSCORP operates a national electronic registry that tracks beneficial ownership interests and servicing rights associated with residential mortgage loans and any changes in those interests or rights. There are approximately 5,000 participating Members, of which 3,000 are residential mortgage servicers. Members register loans and report transfers, foreclosures, and other changes to the status of residential mortgage loans on the MERS System. There are currently approximately 31 million active residential mortgage loans registered on the MERS System. Examined Members receive a substantial portion of the services provided by MERSCORP and MERS.

(3) MERS serves as mortgagee of record and nominee for the participating Members in local land records. MERS takes action as mortgagee through documents executed by “certifying officers” of MERS. MERS has designated



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these individuals, who are officers or employees of Members or certain third-parties who have contractual relationships with Members, as officers of MERS. By virtue of these designations, the certifying officers execute legal documents in the name of MERS, such as mortgage assignments and lien releases.

(4) In connection with services provided to Examined Members related to tracking, and registering residential mortgage loans and initiating foreclosures (“residential mortgage and foreclosure-related services”), MERS and MERSCORP:

(a) have failed to exercise appropriate oversight, management supervision and corporate governance, and have failed to devote adequate financial, staffing, training, and legal resources to ensure proper administration and delivery of services to Examined Members; and

(b) have failed to establish and maintain adequate internal controls, policies, and procedures, compliance risk management, and internal audit and reporting requirements with respect to the administration and delivery of services to Examined Members.

(5) By reason of the conduct set forth above, MERS and MERSCORP engaged in unsafe or unsound practices that expose them and Examined Members to unacceptable operational, compliance, legal, and reputational risks.

163. The Consent Order required MERS and MERSCORP to implement an action plan

and policies to ensure compliance with the law and quality assurance programs. In addition, the

agencies required that MERS maintain adequate litigation reserves. It has been suggested that Wells

Fargo, and the members of MERS will bear the cost of compliance with the Consent Order and

maintaining litigation reserves.

164. On May 5, 2011, the Company filed its Form 10-Q for 1Q11, announcing it had

increased its litigation loss reserve to $1.7 billion. The Form 10-Q further confirmed that the

investigations by the state attorneys general and the U.S. Department of Justice were still ongoing

and could result in significant fines and civil penalties.

Government Investigations Fall Well Short of Examining the Full Extent of Well Fargo’s Fraudulent Conduct of Robo-Signing – Wells Fargo Accused of Stonewalling Government Inquiries

165. On May 17, 2011, Sense on Cents issued an article entitled, “Sense on Cents Calls

Out Jamie Dimon, Vikram Pandit, Brian Moynihan, Michael Carpenter, and John Stumpf.” The

article emphasized that certain of the directors at these banks, including defendant Stumpf, were in

fact not cooperating with certain government inquiries:



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For those of us who embrace the virtues of truth, transparency, and integrity, I have little interest in allowing the assaults on our fellow citizens to pass without greater attention and focus. On that note, let’s navigate and highlight the findings of The New York Times’ fabulous journalist Gretchen Morgenson (a surefire first ballot inductee into the Sense on Cents Hall of Fame) as she recently detailed how the Wall Street banks would care to make A Low Bid for Fixing a Big Mess:

* * *

Clifford J. White III, director of the executive office of the United States Trustee, discussed some of the findings in an interview last week. But before we recount the ugly details, it’s worth noting the immense pushback the banks have mounted against the trustee office.

Banks have repeatedly tried to thwart the program’s actions, filing lawsuits and court motions to prevent officials from compiling evidence. Never mind that part of a trustee’s job is to investigate possible improprieties in foreclosures to determine if they are poisoning the bankruptcy system.

“We have faced consistent opposition by all of the major servicers,” Mr. White said. “We are currently facing 200 motions to quash our discovery requests. We also are facing upwards of 20 appeals either in district courts or in circuit courts.”

Those pushing back include Bank of America, Citigroup, G.M.A.C., JPMorgan Chase and Wells Fargo, he said.

The banks typically make two arguments. First, they say the trustee program has no legal standing to delve into individual cases between lenders and borrowers because it is not a “party” to these disputes. Every court has rejected this claim. Nonetheless, the tactic has allowed servicers to stall trustees’ discovery requests.

In other cases, the banks agree to turn over information in specific matters of interest to the trustee program but refuse to provide details on their overall policies and procedures, which could show deep and systemic flaws.

* * *

“There are continued flaws in the process, and they are not merely technical,” Mr. White continued. “Those flaws undermine the integrity of the bankruptcy system. Many homeowners have been harmed, including where the lender has come in and said ‘we want to lift the stay and go back into foreclosure proceedings,’ even though they lacked a sufficient basis to do it.”

166. In a release from the House Committee on Oversight of Government Reform, it was

revealed that as of May 24, 2011, Wells Fargo, despite having admitted to wrongdoing with respect

to robo-signing had failed to produce documents requested by Congress to aid in its investigation of

issue:



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Six out of ten companies are concealing documents form Congress relating to illegal foreclosures and inflated fees:

. . . Today Oversight Committee Ranking Member Elijah E. Cummings sent a letter to Chairman Darrell Issa requesting that the Committee issue subpoenas to six mortgage servicing companies that have refused to provide documents relating to illegal foreclosures, inflated fees, and other abuses relating to millions of families losing their homes.

“The foreclosure crisis has had devastating consequences for communities across the country and continues to threaten our nation’s economic recovery, drain state and local budgets, and displace families,” said Ranking Member Cummings. “The banks have admitted wrongdoing, and yet they are now refusing to provide Congress with documents that are critical to our investigation.”

In February, Ranking Member Cummings sent letters to ten of the nation’s largest mortgage servicing companies seeking documents relating to allegations of wrongful foreclosures against military servicemembers and their families, “robo-signing” of foreclosure documents filed with courts, inflated fees, fraud, deficient recordkeeping, and other deceptive practices.

Four companies have begun to respond to these requests, but the remaining six - MetLife, Inc.; SunTrust Banks, Inc.; PHH Mortgage; U.S. Bank, N.A.; Wells Fargo and Company; and Bank of America Home Loans have failed to provide any requested documents despite efforts to obtain their voluntary compliance. One company, MetLife, Inc., explained in its letter that it would not provide requested documents unless it was “subject to subpoena.”

167. On May 26, 2011, a Los Angeles Times article, titled “Scrutiny of the home seizures

grows; The state subpoenas a Florida firm that handles foreclosures for many major banks,”

discussed the subpoenas and described Wells Fargo’s retention of Lender Processing Services in

California to file and record document to facilitate foreclosures:

California Atty. Gen. Kamala D. Harris is investigating an obscure Florida firm that processes foreclosures for many of the nation’s major financial institutions, as she intensifies her examination of repossession practices in the Golden State.

The state’s top law enforcement officer subpoenaed Lender Processing Services Inc. of Jacksonville, Fla., a company that handles loans in default on behalf of several major banks. The subpoena requires LPS to produce documents and provide written answers to questions from the attorney general’s office by June 24.

* * *

As part of an investigation into so-called robo-signing, Harris said she was investigating whether employees of the company fraudulently signed key foreclosure documents in California. LPS processes more than 50% of all mortgages in the United States and has contracts with more than 80 financial institutions, she said.

* * *



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But Wednesday, Harris emphasized that California homeowners may have fallen victim to robo-signers who didn’t verify the accuracy of the documents they were putting their names on and, in some cases, failed even to read the documents. Often, individuals signed thousands of times a day, she said.

“California homeowners have been exposed to fraud and crime at every step of the mortgage process,” Harris said.

* * *

Although courts in California do not oversee the foreclosure process, certain key legal documents are necessary to take back a home. One such document is the notice of default, which initiates the foreclosure process and must be notarized and then filed at county recorders’ offices. Another key document necessary for foreclosure is the assignment of the deed of trust, the legal term for a mortgage, which proves that a financial institution has the right to foreclose.

LPS was used by many of the largest mortgage lenders and servicers in the country, and former LPS employees have testified that documents were robo-signed there, Harris said in a statement Wednesday. The company has several offices in California.

“All the states are facing a similar issue: whether questionable practices were used to prepare, sign and notarize official foreclosure documents,” said Frances Grunder, senior assistant California attorney general. “In California, foreclosure information must be accurate, verified and properly notarized because these documents are used to foreclose on people’s homes. The issue is whether those laws were followed here.”

168. In June 2011, Mortgage Servicing News issued an article about a Regulatory Order

concerning MERS. Notably, one commentator noted that the reforms required to be done by MERS

would be expensive and that expense would be borne by its members, including Wells Fargo:

To many in the industry, federal regulators just gave Mortgage Electronic Registration Systems a big stamp of approval.

In a recent consent order, regulators never questioned the underlying business model of Merscorp Inc., whose private loan registry has become a lightning rod for foreclosure litigation. (Related stories, pages 10 and 29.)

The Office of the Comptroller of the Currency did not even attempt to address the controversy being litigated in hundreds of courts across the country: Does MERS have the legal right to foreclose on a borrower?

* * *

Regulators also did not question the validity of allowing hundreds of bank employees to be designated as “certifying officers” of MERS-an issue plaintiff’s lawyers maintained amounts to its own robo-signing scandal. Such certifying officers will have to be identified and tracked, but they can still sign legal documents such as mortgage assignments and lien releases in MERS’ name, regulators said.



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* * *

MERS did not come out of the regulators’ examination completely unscathed. Given that 31 million residential mortgage loans are recorded on the MERS system, ensuring the accuracy and reliability of data reported by the servicers will be a significant challenge. Banks are particularly spooked by regulators’ requirements that MERS “maintain adequate reserves for contingency risks and liabilities.”

* * *

Marshall said the 14 largest bank servicers face “substantial costs” complying with their own consent orders and getting MERS in compliance.

The Reston, Va., company must hire significantly more staff, get its finances in order and comply with third-party audits and added scrutiny (where none existed before) from its 25 shareholders, including B of A, Wells Fargo & Co., JPMorgan Chase & Co., Fannie Mae and Freddie Mac.

“The staffing, reviews and audits will be costly,” Marshall said. MERS “will pay for it presumably by assessing its members.” (MERS revenue comes solely from its 2,184 active members, which pay annual fees determined by their size and transaction fees for loan registration.).

169. On July 11, 2011, The Huffington Post published an article entitled “As Government

Nears Accord With Banks, Questions Swirl Over Scope of Investigation” strongly suggesting that

despite state and federal prosecutors’ efforts to complete a proposed settlement of approximately $30

billion with the nation’s five largest home loan companies, including Wells Fargo, over alleged

mortgage abuses, the underlying state and federal probes tied to the settlement have been extremely

limited and haven’t examined the full extent of the alleged wrongdoing. The article stated, in part:

The investigators have yet to gather many documents, conduct depositions or assemble tallies of aggrieved homeowners. They don’t yet have a good handle on the number of wrongful foreclosures, the amount of fraudulent documents filed in local courts or the volume of legal instruments processed by so-called “robo-signers,” the agents that lenders employed to process foreclosure filings en masse without examining the underlying paperwork.

“The evidence a prosecutor would use is not in the possession of the prosecution,” said one person familiar with the ongoing settlement talks.

* * *

According to people familiar with the findings, that evidence includes:

- Two sets of confidential reports – one of which was first reported by The Huffington Post – that accuse the five companies of defrauding taxpayers on government-insured mortgages and violating the False Claims Act, a Civil War-era law crafted as a weapon against firms that swindle the government, because defective



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foreclosures, reckless underwriting, flawed quality controls and inadequate foreclosure prevention led to taxpayer losses.

- Findings from the Justice Department’s U.S. Trustee Program, a unit overseeing the integrity of bankruptcy courts, that show mortgage servicers filed inaccurate claims in as many as 10 percent of bankruptcy cases.

- Undisclosed multi-state audits of state-regulated mortgage servicers like Ally, which found “egregious” violations of consumer protection laws.

* * *

The Justice Department’s bankruptcy unit only reviewed a limited number of loans that even entered bankruptcy . . . .

The federal bank regulators’ review examined just 2,800 loan files, or 0.001 percent of homes that received a foreclosure filing last year, according to calculations made using data from the Office of the Comptroller of the Currency and RealtyTrac, a data provider. Only about 200 loans each were examined at banking behemoths JPMorgan, Bank of America, Citi and Wells, Julie L. Williams, the No. 2 official at the OCC and the agency’s chief counsel, told a House panel last Thursday. Those four firms collectively service $5.7 trillion in home loans, or about 54 percent of all outstanding residential mortgages, according to Inside Mortgage Finance.

170. The Huffington Post article also noted that several state task forces that had been

designed to investigate Well Fargo’s fraudulent conduct had been eliminated due to ongoing budget

constraints:

On May 23, Kamala Harris, the attorney general of California, flanked by advocates, homeowners, the mayor of Los Angeles and HUD representatives, announced the formation of a “Mortgage Fraud Strike Force” designed to protect borrowers and investors in her state, the nation’s largest housing market. California ranked third last year on the Mortgage Asset Research Institute’s Mortgage Fraud Index.

But Harris announced last week that the special unit will likely lose its investigative abilities, a consequence of a debilitating $71 million budget cut. Her office will lose the ability to follow up on open investigations ranging from foreclosure scams to “multi-million dollar corporate fraud,” she said in a statement.

171. On July 15, 2011, The Huffington Post published an article entitled “Elizabeth

Warren: Government Hasn’t Sufficiently Probed Foreclosure Abuses” reporting that Elizabeth

Warren, a senior adviser to President Barack Obama and Treasury Secretary Timothy Geithner, told

a congressional panel that government agencies may not have sufficiently investigated claims that

borrowers’ homes were illegally seized by banks such as Wells Fargo:



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“I think there’s a real question about whether there’s been adequate investigation,” said Warren, the temporary custodian of the Bureau of Consumer Financial Protection, a new federal agency charged with protecting borrowers from abusive lenders.

Despite Several Investigations Evidence Suggests that Wells Fargo Continues to Commit a Fraud Upon the Court by Engaging in the Fraudulent Business Practice of Robo-Signing

172. On July 18, 2011, Reuters published an article entitled “Special report: Banks

continue robo-signing” reporting that Wells Fargo was among a handful of banks that continued to

engage in the fraudulent practice of robo-signing. The article stated, in part:

Federal bank regulators signed settlements in March with 14 loan servicers – banks and other companies that perform tasks for mortgage investors such as collecting payments from homeowners and when necessary, filing to foreclose. The 14 firms promised further internal investigations, remediation for some who were harmed and a halt to the filing of false documents. All such behavior had stopped by the end of 2010, they said.

Of these companies, Reuters has found at least five that in recent months have filed foreclosure documents of questionable validity: OneWest, Bank of America, HSBC Bank USA, Wells Fargo and GMAC Mortgage.

* * *

Reuters reviewed records of individual county clerk offices in five states – Florida, Massachusetts, New York, and North and South Carolina – with searchable online databases. Reuters also examined hundreds of documents from court case files, some obtained online and others provided by attorneys.

The searches found more than 1,000 mortgage assignments that for multiple reasons appear questionable: promissory notes missing required endorsements or bearing faulty ones; and “complaints” (the legal documents that launch foreclosure suits) that appear to contain multiple incorrect facts.

These are practices that the 14 banks and other loan servicers said had occurred only on a small scale and were halted more than six months ago.

173. On July 19, 2011, The Associated Press published an article entitled “Lawmakers call

for hearings on robo-signing” reporting that the practice of robo-signing is still a widespread

problem throughout the mortgage industry. The article stated, in part:

Lawmakers and enforcement agencies called for hearings and further investigation Tuesday after learning that the illegal practice known as robo-signing has continued in the mortgage industry.

* * *

Sen. Sherrod Brown, D-Ohio., chair of the Financial Institutions and Consumer Protection Subcommittee, said the subcommittee will hold a hearing on the robo-signing issue.



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“Wall Street and some in Washington want us to believe that robo-signing is a thing of the past,” said Brown. “But the same risky practices that put our economy on the brink of collapse continue to infect the housing market.”

Rep. Maxine Waters, D-Calif., a senior member of the House Committee on Financial Services said the lenders who continue the practice “need to be investigated and prosecuted.” She told The Associated Press that she believed regulators should step in and that the absence of stronger regulation is “the reason why the system broke down in the first place.” She said the county officials’ findings show lenders will not stop practices like robo-signing on their own.

“(The lenders) have complete disregard for the damage they have already caused and have no intention of changing their ways,” said Waters, who also called for more hearings on the issue.

County officials who are responsible for keeping land records, including property deeds, say that they have received thousands of robo-signed documents filed in their offices since October.

In Essex County, Mass., the office that handles property deeds has received almost 1,300 documents since October with the signature of “Linda Green,” but in 22 different handwriting styles and with many different titles.

Wells Fargo Pays $85 Million Penalty and Enters into Consent Order to Resolve Allegations to Predatory Lending and Steering Prime Qualified Loan Applicants Into Subprime Loans Altering Loan Documents

174. On July 20, 2011, Wells Fargo & Company and Wells Fargo Financial, Inc. entered

into an Order to Cease and Desist and Order of Assessment of a Civil Money Penalty Issued Upon

Consent (the “July 20 Consent Order”) with the Board of Governors of the FRB which resolved an

investigation of Wells Fargo Financial’s mortgage lending activities by the FRB. In particular, the

Board of Governors found that Wells Fargo, through its employees, has altered and falsified loan

documents, which help increase sales staff income and steered prime borrowers into subprime

mortgages:

WHEREAS, in recognition of the common goals of the Board of Governors of the Federal Reserve System (the “Board of Governors”), Wells Fargo & Company, San Francisco, California (“Wells Fargo”), and its subsidiary, Wells Fargo Financial, Inc., Des Moines, Iowa (“Financial”), each a bank holding company as defined in the Bank Holding Company Act, 12 U.S.C. § 1841 et. seq. (“BHC Act”), to ensure compliance by the consolidated Wells Fargo organization with applicable federal and state laws, rules and regulations related to home mortgage lending, and effective management of the legal, reputational, and compliance risks of the consolidated Wells Fargo organization associated with home mortgage lending, the Board of Governors, Wells Fargo, and Financial have mutually agreed to enter into this combined Order to Cease and Desist and Order of Assessment of a Civil Money Penalty Issued Upon Consent (the “Order”);

* * *



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WHEREAS, this Order is issued with respect to the following allegations:

A. During the period from at least January 2004 to the Reorganization (the “Relevant Period”), Financial’s business model with respect to home mortgage lending was to sell debt consolidation, cash-out refinance loans at sub-prime rates (“nonprime loans”) to customers principally through a network of more than 800 offices located throughout the United States, called “stores.” The principal marketing method was sales personnel making outbound, unsolicited telephone calls to individuals who had some existing customer relationship with Financial. Under Financial’s underwriting process, the sales personnel were responsible for obtaining income-related documents (such as pay stubs and W-2 forms) and forwarding them to Financial’s centralized underwriting centers. Financial typically did not require that borrowers fill out and sign loan applications that included the borrower’s representation of his or her income.

* * *

Income Document Alteration or Falsification

D. Financial’s internal controls were not adequate to detect and prevent instances when certain of its sales personnel, in order to meet sales performance standards and receive incentive compensation, altered or falsified income documents and inflated prospective borrowers’ incomes to qualify those borrowers for loans that they would not otherwise have been qualified to receive.

E. During the Relevant Period, particular instances of customer income document alteration or falsification by individual Financial sales personnel came to the attention of Financial’s compliance officers. The compliance officers investigated the particular instances brought to their attention and disciplinary action was taken against certain individual sales personnel if their involvement in income document alteration or falsification was admitted or otherwise proven. In mid-2008, Financial took steps to improve its internal controls that made it more difficult for sales personnel to alter or falsify income-related documents.

Steering Potential Prime Borrowers Into Nonprime Loans

F. In or around August 2005, in response to public and regulatory criticism, Financial initiated a process, referred to as the “A-Paper Filter,” to provide prime pricing to customers for qualifying debt consolidation cash-out refinancing mortgage loans. Initially, if a transaction “passed” the filter and a further underwriting process, the customer would be offered prime pricing from Financial. Beginning in or around February 2006, the A-Paper Filter was modified so that customers with potentially qualifying transactions instead would be referred to Financial’s affiliate, Wells Fargo Home Mortgage (“Home Mortgage”), which would determine the customer’s eligibility for prime pricing and, if eligible, originate the prime priced home mortgage loan. At approximately the same time, Financial revised its performance standards and compensation programs so that it generally was less advantageous for sales personnel to sell a prime loan to the customer than a nonprime loan.

G. As a result of the modifications and revisions, some customers during the Relevant Period who may have qualified for a prime priced home mortgage loan at Financial or through referral to Home Mortgage were sold loans by sales personnel priced at nonprime rates, primarily through “upselling” prospective borrowers so that the borrowers requested cash-backloans that were sufficiently large that the borrowers’ transactions no longer qualified for prime pricing. While the



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customers received disclosures regarding the nonprime rates they were being charged, the customers were not advised that they may have qualified for prime priced loans or that it was generally more advantageous for the salesperson to sell a nonprime, rather than a prime, loan.

H. Financial’s internal controls, including controls relating to Financial’s sales performance standards and compensation programs, were not adequate to detect and prevent incidents of evasion of the A-Paper Filter by Financial sales personnel.

I. Deficiencies specified in paragraphs D. through H. above resulted in:

a. Unsafe or unsound banking practices;

b. Unfair or deceptive acts or practices within the meaning of section 5(a)(1) of the Federal Trade Commission Act, 15 U.S.C. §45(a)(1);

c. Violations of various state laws pertaining to fraud and false or misleading statements in home mortgage loan-related documents, and to unfair or deceptive acts or practices.

175. The July 20 Consent Order provides, among other things, that (i) Wells Fargo shall

submit to the FRB within 90 days of the July 20 Consent Order a plan, acceptable to the FRB, for

overseeing fraud prevention and detection and for compliance with certain federal and state laws

applicable to unfair and deceptive practices and certain other laws applicable to mortgage lending;

(ii) Wells Fargo shall submit to the FRB within 90 days of the July 20 Consent Order a plan,

acceptable to the FRB, for overseeing the implementation and modification of incentive

compensation and performance management programs for sales, sales management and underwriting

personnel with respect to mortgage lending within the Wells Fargo organization; (iii) Wells Fargo

shall submit within 90 days of the July 20 Consent Order a plan, acceptable to the FRB, for the

remediation to borrowers who entered into loans with Wells Fargo Financial beginning January 1,

2004 through September 2008 where the loans were based on income documents that were altered or

falsified by sales personnel; (iv) Wells Fargo shall submit within 90 days of the July 20 Consent

Order a plan, acceptable to the FRB, for the remediation to borrowers who received mortgage loans

through Wells Fargo Financial at non-prime prices during the period from January 1, 2006 through

September 2008, but whose mortgage loans may have qualified for prime pricing. In addition to

these provisions to submit plans for compliance and compensation changes and for remediation

payments to certain Wells Fargo Financial borrowers, the July 20 Consent Order imposes a civil

money penalty of $85 million on Wells Fargo.



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176. On July 21, 2011, according to reports from Reuters, and in conjunction with the

April 13, 2011 Consent order between MERS and the OCC, MERS adjusted its operating procedures

disallowing its service members from filing assignments and foreclosure documents in court in the

name of MERS. This adjustment will indeed increase the costs associated with conducting

foreclosures:

Facing Criticism, MERS Cuts Role in Foreclosures

Wed, Jul 27 2011 By Scot J. Paltrow

NEW YORK (Reuters) – MERS, the electronic mortgage registry that faces multiple investigations for its role in thousands of problematic foreclosure cases, changed its rules to lower its profile in court-supervised foreclosures.

* * *

In rule changes announced to MERS members on July 21, the company forbade members to file any more foreclosure actions in MERS’s name.

It also required mortgage servicers to obtain mortgage assignments and record them with county clerks before beginning foreclosures.

Mortgage-loan servicers perform routine duties for the investment trusts that own pools of mortgages, including collecting mortgage payments and, when necessary, filing foreclosures.

Although these trusts are legally required to own the mortgages when they file to foreclose, the servicers in many cases did not obtain documents known as assignments on their behalf until weeks or months after launching a foreclosure action in court, a recent Reuters Special Report found. (link.reuters.com/kyb72s)

Since the collapse of the housing boom, many foreclosure cases were filed in MERS’s name, even though the registry doesn’t really own either the mortgage or the promissory note, the document which states the terms of the mortgage loan.

MERS’s role in foreclosure cases has made it a lightning rod in recent months in court decisions which have held that loan servicers’ use of the registry violates basic real estate and mortgage laws.

* * *

Under the new rules, servicers are required to stop filing foreclosures in MERS’s name, but MERS’s role in foreclosures won’t actually be eliminated. The servicers will continue to obtain the needed mortgage assignments from MERS. In past cases examined by Reuters, such assignments have included ones of questionable legitimacy, such as mortgages owned by now-defunct lenders.

O. Max Gardner III, a North Carolina lawyer who is specialist in foreclosure actions in bankruptcy courts, said the change will have the effect of making MERS’s role in assigning mortgages invisible in court.



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The assignments will still come from MERS, but “they just won’t be in the court files any more,” he said.

MERS spokeswoman Janice Smith said the new rules make mandatory a trend that already was under way.

She noted that Fannie Mae, Freddie Mac and several large banks already had stopped filing foreclosures in MERS name. Smith said the change would avoid confusing homeowners facing foreclosure by eliminating MERS, a company they had never heard of, from court documents.

She also said that MERS’s original purpose was to keep track of changes in servicers and mortgage ownership. “Foreclosure really was not central to MERS’s core business,” she said, adding that MERS received no income from foreclosures.

Mortgage-law specialists say that lenders and servicers for a long time relied heavily on bringing foreclosures in MERS’s name. This helped make possible foreclosures that otherwise might not have taken place because the necessary original documents were missing.

MERS says that it is the holder of record of 32 million, or 60 per cent, of U.S. mortgages. But it has only a handful of employees. Instead, it has designated some 20,000 employees of banks and other servicers as MERS “officers.”

Some courts and homeowners’ lawyers have criticized this system because in effect it enables servicers to assign mortgages to themselves whenever they needed one to foreclose.

The rule change also comes amid a growing movement against MERS among county clerks around the U.S. They have been pressing state attorneys general and local prosecutors to investigate MERS for allegedly failing to record documents with them and pay the associated filing fees.

177. On August 5, 2011, the Company filed its Form 10-Q for 2Q11, announcing that the

Company’s liability for probable and estimable losses related to litigation was $1.6 billion as of

June 30, 2011. The Form 10-Q also reported that the Company incurred $428 million of operating

losses in 2Q11, substantially all from litigation accruals for mortgage foreclosure-related matters.

The Form 10-Q further confirmed that the investigations by the state attorneys general and the U.S.

Department of Justice were still ongoing and could result in significant fines and penalties.

DAMAGE TO WELLS FARGO

178. During the Relevant Period, Wells Fargo’s directors and top officers have severely

injured Wells Fargo and exposed the Company’s business, goodwill and reputation by breaching

their fiduciary duties of candor, loyalty and good faith, which has exposed Wells Fargo to massive



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fines, penalties and damages, while lining their own pockets with excessive salaries and other perks

not justified by Wells Fargo’s dismal financial performance while under their stewardship.

179. By this action, plaintiffs seek to remedy defendants’ misconduct and recover damages

for Wells Fargo.

CONSPIRACY, AIDING AND ABETTING, AND CONCERTED ACTION

180. In committing the wrongful acts alleged herein, defendants have pursued, or joined in

the pursuit of, a common course of conduct, and have acted in concert with and conspired with one

another in furtherance of their common plan or design. In addition to the wrongful conduct herein

alleged as giving rise to primary liability, defendants further aided and abetted and/or assisted each

other in breaching their respective duties.

181. During all times relevant hereto, defendants, collectively and individually, initiated a

course of conduct that was designed to and did: (i) enhance the defendants’ executive and directorial

positions at Wells Fargo and the profits, power, and prestige that the defendants enjoyed as a result

of holding these positions; and (ii) deceive the public, including Wells Fargo’s shareholders, via

false and misleading statements regarding the defendants’ management of Wells Fargo’s financial

results and operations, and its future business prospects. In furtherance of this plan, conspiracy, and

course of conduct, defendants, collectively and individually, took the actions set forth herein.

182. Each of the defendants aided and abetted and rendered substantial assistance in the

wrongs complained of herein. In taking such actions to substantially assist the commission of the

wrongdoing complained of herein, each defendant acted with knowledge of the primary wrongdoing,

substantially assisted the accomplishment of that wrongdoing, and was aware of his or her overall

contribution to and furtherance of the wrongdoing.

DERIVATIVE AND DEMAND FUTILITY ALLEGATIONS

183. Plaintiffs bring this action for the benefit of Wells Fargo to redress injuries suffered,

and to be suffered, by Wells Fargo as a result of defendants’ violations of law, as well as the aiding

and abetting thereof. This action is not a collusive action designed to confer jurisdiction on a court

of the United States that it would not otherwise have. Wells Fargo is named as a nominal party in



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this action. Plaintiffs will adequately represent the interests of Wells Fargo in enforcing and

prosecuting their rights.

184. The Wells Fargo Board at the time this action was initiated currently consisted of the

following 14 individuals: Stumpf, Baker, Chen, Dean, Engel, Hernandez, James, McDonald,

Milligan, Moore, Quigley, Runstad, Sanger and Swenson.

185. Plaintiffs have not made a pre-suit demand on the Wells Fargo Board to bring these

derivative claims because such demand would be a futile and useless act and, therefore, is excused

for the reasons set forth above in ¶¶1-184 and below in ¶186(a)-(e).

186. The members of the Board have presided over a business practice of policies and

procedures that is alleged and at times found and proven to prey upon those with the least amount of

leverage in order to expand profits. The Board all the while has permitted the Company and its

management to publicly deny facts it knew to be true and engage in public relations and litigation

strategizes designed to avoid responsibility and accountability for violations of both federal and state

laws.

(a) A pre-suit demand on the Board is excused as a useless and futile act because

a majority of the Board is not independent. According to Wells Fargo’s Proxy Statement dated

March 21, 2011, the Company has already determined defendant Stumpf is not considered an

“independent director,” even as defined by the lenient NASDAQ rules. Moreover, many of Wells

Fargo’s directors and their business or family associates have had and still have loans or

commitments with the Company and its subsidiaries. In addition, the defendants have engaged in or

permitted the other defendants to engage in related-party transactions with Wells Fargo, including

the following:

(i) Defendant Hernandez is Chairman, President, CEO and a director of

Inter-Con Security Systems, Inc. (“Inter-Con”). Defendant Hernandez owns a 26% interest in Inter-

Con. Since 2006, Wells Fargo has paid Inter-Con over $13.3 million in exchange for guard services

at certain of the Company’s branches:

(ii) Defendant Milligan’s brother has worked for Wells Fargo since 2004,

as a private client advisor. His salary for 2010 was $210,000; and



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(iii) Defendant Quigley’s son has worked for Wells Fargo since 2006, as an

institutional relationship manager in the Company’s Wholesale Banking Group. His salary for 2010

was $450,000.

(b) All of the Board members at the time this action was initiated (defendants

Stumpf, Baker, Chen, Dean, Engel, Hernandez, James, McDonald, Milligan, Moore, Quigley,

Runstad, Sanger and Swenson) reviewed and caused to be filed the Company’s 2010 and 2011 false

and misleading SEC filings detailed herein, which repeatedly failed to properly address and reveal

the true extent of Wells Fargo’s fraudulent foreclosure practices.

(c) Of the current Board members, seven (defendants Baker, Dean, Hernandez,

Milligan, Moore, Quigley and Swenson) serve[d] on the Company’s Audit and Examination

Committee during the Relevant Period. All of these members have been determined to be “audit

committee financial experts” as defined by SEC regulations. Under the Audit & Examination

Committee’s charter, each of these defendants was responsible for assisting “the Board of Directors

in fulfilling its responsibilities to oversee Company policies and management activities related to . . .

internal controls, . . . operational risk and legal and regulatory compliance[.]” These seven Board

members failed to properly discharge such duties, as discussed herein.

(d) Of the current Board members, five (defendants Baker, Dean, Hernandez,

Milligan and Runstad) serve on the Corporate Responsibility Committee. Under this Committee’s

charter, each of these defendants was responsible for: overseeing “the Company’s policies,

programs, and strategies regarding social responsibility matters of significance to the Company and

the public at large, including the Company’s community development and reinvestment activities

and performance, fair and responsible lending, government relations, support of charitable

organizations, and environmental issues;” and, monitoring “the Company’s reputation and

relationships with external stakeholders regarding significant social responsibility matters, and

advis[ing] the Board and management on strategies that affect the Company’s role and reputation as

a socially responsible organization[.]” These defendants cannot impartially consider a demand

because they face a substantial likelihood of liability.



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(e) The Board has made a number of decisions that give rise to a reasonable doubt

that they are entitled to protection under the business judgment rule. Such decisions include, inter

alia, the Board’s recommendation in the Company’s March 21, 2011 Proxy Statement that the

Company’s shareholders vote against Liu’s stockholder proposal and the reasons given therefore.

See ¶149. Additionally, the factual bases of these consent orders demonstrate that the Board was

unwilling to take any action to curtail the Company’s fraudulent foreclosure practices until forced to

do so by the government. Further, the Board neither admitted nor denied the factual bases for such

orders, and declined to agree to or otherwise pursue pecuniary relief for the wrongdoing on behalf of

the Company, or agree that any of the persons responsible for the wrongdoing pay any financial

penalties to the government. The Board’s unwillingness to seek compensatory redress for the

Company raises a reasonable doubt that its decisions to enter into the foregoing consent orders were

the products of valid business judgment.

187. Members of the Board during the time period relevant to the Gutierrez, 730 F. Supp.

2d at 1124, approximately 2002-2007, and its litigation permitted and or approved the policies and

procedures found to have been violative of law. These directors include at least defendants Dean,

Engel, Hernandez, Milligan, Moore, Quigley, Runstad, Sanger and Swenson. On August 10, 2010,

Wells Fargo was found liable after a trial in the United States District Court for the Northern District

of California for fraudulent and unfair business practices under California Business and Professions

Code §17200, for, among other things, misleading its customers and engineering processes designed

to fraudulently maximize the overdraft fees collected from consumers for no “purpose other than

profiteering.” Gutierrez, 730 F. Supp. 2d at 1124. With respect to the Company’s misleading

materials and inadequate disclosures, the Court noted Wells Fargo’s intent to hide its deceptive

practices:

Given the harsh impact of the bank’s high-to-low practices, the bank was obligated to plainly warn depositors beforehand. Instead, the bank went to lengths to hide these practices while promulgating a facade of phony disclosure. The bank’s own marketing materials were deceptive in leading customers to expect purchases to be debited in the order made (rather than to be resequenced in high-to-low order).

Id. at 1112-13.



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188. The Court went further, finding that Wells Fargo’s undisclosed overdraft sequencing

process constituted a gimmick and a trap to make profits off the backs of the working poor:

Wells Fargo constructed a trap – a trap that would escalate a single overdraft into as many as ten through the gimmick of processing in descending order. It then exploited that trap with a vengeance, racking up hundreds of millions off the backs of the working poor, students, and others without the luxury of ample account balances.

Id. at 1119.

189. Wells Fargo was enjoined from engaging in the practices alleged and ordered to pay

injunctive relief totaling approximately $200 million.

190. On July 20, 2011, Wells Fargo and Company and its subsidiary, Wells Fargo

Financial Inc., Des Moines, Iowa, entered a Cease and Desist Order and Order of Assessment of

Civil Money Penalty Issued Upon Consent with the United States Board of Governors of the Federal

Reserve. See ¶¶174-175. The Consent Order resolved In the Matter of Wells Fargo & Company,

San Francisco, California, and Wells Fargo Financial Inc., Des Moines, Iowa, Nos. 11-094-B-

HC(1), Order to Cease and Desist and Order of Assessment of Civil Money Penalty Issued Upon

Consent (July 20, 2011). The Consent Order resolved conduct between at least 2004 and 2008,

wherein Wells Fargo, San Francisco, subsidiary Wells Fargo Financial and its employees, falsified

and/or altered documents to inflate borrower’s income on loan applications in order to qualify for

loans they would not have otherwise have qualified. Separately, Wells Fargo employees were

steering borrowers into subprime loans who would have, but for “upselling” by Wells Fargo

qualified for prime pricing. The Cease and Desist Order found that the Company’s internal controls

were not sufficient to detect this conduct of employees.

• “Financial’s internal controls, including controls relating to Financial’s sales performance standards and compensation programs, were not adequate to detect and prevent incidents of evasion of the A-Paper Filter by Financial sales personnel.”

• “Deficiencies specified in paragraphs D. through H. above resulted in:

(i) Unsafe or unsound banking practices;

(ii) Unfair or deceptive acts or practices within the meaning of section

5(a)(1) of the Federal Trade Commission Act, 15 U.S.C. § 45(a)(1);



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(iii) Violations of various state laws pertaining to fraud and false or

misleading statements in home mortgage loan-related documents, and to unfair or deceptive acts or

practices.”

(a) The current directors who were also directors during the period in which the

deceptive acts were carried out were Chen, Dean, Hernandez, Sanger, Quigley, Moore, Runstad,

Milligan and Swenson. As demonstrated, a majority of Wells Fargo’s directors knowingly

participated in and authorized the wrongful acts and omissions, or recklessly disregarded the wrongs

which are complained of herein. Thus, despite knowledge of the claims asserted by plaintiffs, the

defendants have knowingly chosen not to exercise the fiduciary duties of loyalty and due care owed

to the Company and protect Wells Fargo or to rectify the illegal practices complained of herein.

(b) The acts complained of constitute waste and are violations of the defendants’

fiduciary duties owed to Wells Fargo and, therefore, are not protected by the business judgment rule

and/or subject to ratification by shareholders.

(c) The defendants have not taken any legal action against themselves and/or any

other director and/or current or former officers for failing to implement adequate internal controls

and engaging in conduct that has exposed Wells Fargo to liability for violating state and federal

laws. Any suit by the Board to remedy the wrongs complained of herein would expose the

defendants and their friends and business allies to significant personal liability for their breaches of

fiduciary duties and other misconduct. The defendants have demonstrated their unwillingness and/or

inability to act in compliance with their fiduciary obligations and/or to sue themselves and/or their

fellow directors for the wrongful conduct described herein.

(d) The defendants have close personal and business ties with each other and are,

consequently, interested parties who cannot in good faith exercise independent business judgment to

determine whether to bring this action against themselves or any other member of the Board. For

example, the Company routinely makes charitable donations to different tax-exempt organizations

on which one or more of the defendants serve as an officer, board or trustee chair and the Company

purchases software from companies where defendants Chen and Swenson serve as CEOs.



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(e) Each defendant had the ability and/or opportunity to prevent the unlawful

practices complained of herein. As members of the Board, the defendants are responsible for

overseeing the Company’s compliance with legal requirements and, therefore, all directors are liable

for not ensuring that the officers and employees of the Company did not expose Wells Fargo to

unnecessary risk. Because the defendants are liable for approving and directing the illegal conduct

described herein, demand would be futile.

(f) Wells Fargo’s officers and directors are protected against personal liability by

a large directors’ and officers’ liability insurance policy. They caused the Company to purchase that

insurance for their protection with corporate funds, i.e., monies belonging to the shareholders of

Wells Fargo. However, the directors’ and officers’ liability insurance policy covering the defendants

contains provisions which eliminate coverage for any action brought directly by Wells Fargo against

these defendants, known as, inter alia, the “insured-versus-insured exclusion.” As a result, if these

directors were to sue themselves, no insurance protection would be provided for the derivative

claims. Thus, this is a further reason why the defendants will not bring such a suit, for to do so

would subject them and their colleagues and/or friends to a judgment of millions of dollars that

would have to be paid from their individual assets alone. On the other hand, if the claims are

brought derivatively, such insurance coverage will provide a basis for the Company to effectuate a

recovery.

(g) The defendants refused (and continue to refuse, as evidenced by the recent

reports of continued robo-signing by Wells Fargo) to put into place adequate internal controls and

adequate means of supervision to stop the wrongful conduct alleged herein despite the fact that the

Board knew and/or recklessly ignored such wrongful business practices. These acts, and the acts

alleged in this action, demonstrate a pattern of gross misconduct, which conduct is not taken

honestly and in good faith.

COUNT I

Against All Defendants for Breach of Fiduciary Duty

191. Plaintiffs incorporate ¶¶1-190.



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192. Each defendant owed to the Company the duty to exercise candor, loyalty and good

faith in the direction and administration of Wells Fargo’s business and affairs.

193. Defendants’ misconduct was not due to an honest error or misjudgment, but rather to

their intentional breach or reckless disregard of the fiduciary duties they owed to the Company.

Defendants intentionally breached or recklessly disregarded their fiduciary duties to protect the

rights and interests of Wells Fargo.

194. In breach of their fiduciary duties owed to Wells Fargo, defendants knowingly

participated in and caused Wells Fargo to waste its valuable assets and otherwise to expend

unnecessarily its corporate funds, and failed to properly direct Wells Fargo’s business, rendering

them personally liable to the Company for breaching their fiduciary duties.

195. As a direct and proximate result of defendants’ breaches of their fiduciary obligations,

Wells Fargo has sustained and continues to sustain significant damages. As a result of the

misconduct alleged herein, defendants are liable to the Company.

COUNT II

Against All Defendants for Abuse of Control

196. Plaintiffs incorporate ¶¶1-195

197. Defendants’ misconduct constituted an abuse of their ability to control and influence

Wells Fargo, for which they are legally responsible.

198. As a direct and proximate result of defendants’ abuse of control, Wells Fargo has

sustained significant damages.

199. As a direct and proximate result of defendants’ abuse of control, Wells Fargo has

sustained and continues to sustain significant damages. As a result of the misconduct alleged herein,

defendants are liable to the Company.

COUNT III

Against All Defendants for Gross Mismanagement




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201. Defendants have grossly mismanaged Wells Fargo’s business and affairs, and

exposed and subjected Wells Fargo to damages, fines and penalties, by causing the Company to

violate state and federal laws applicable to Wells Fargo’s business.

202. By their actions, defendants breached their fiduciary duties to direct and control Wells

Fargo in a manner consistent with the legal duties of directors and officers of a publicly held

company.

203. As a result of the defendants’ gross mismanagement, Wells Fargo has sustained and

will continue to sustain damages and irreparable injury, for which it has no adequate remedy at law.

COUNT IV

Against All Defendants for Corporate Waste


205. As a result of the foregoing misconduct, defendants have caused Wells Fargo to waste

valuable corporate assets.

206. As a direct and proximate result of defendants’ corporate waste, Wells Fargo has

sustained and continues to sustain significant damages. As a result of the misconduct alleged herein,

defendants are liable to the Company.

PRAYER FOR RELIEF

WHEREFORE, plaintiffs demand judgment as follows:

A. Declaring that plaintiffs may maintain this action on behalf of Wells Fargo and that

plaintiffs are adequate representatives of the Company;

B. Declaring that the defendants have breached and/or aided and abetted the breach of

their fiduciary duties to Wells Fargo;

C. Determining and awarding to Wells Fargo the damages sustained by it as a result of

the violations set forth above from each of the defendants, jointly and severally, together with

interest thereon;

D. Determining and awarding to Wells Fargo exemplary damages in an amount

necessary to punish defendants and to make an example of defendants to the community according

to proof at trial;



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E. Awarding Wells Fargo restitution from defendants, and each of them;

F. Awarding plaintiffs the costs and disbursements of this action, including reasonable

attorneys’ and experts’ fees, costs and expenses; and

G. Granting such other and further equitable relief as this Court may deem just and

proper.

JURY DEMAND

Plaintiffs demand a trial by jury.

DATED: September 12, 2011 ROBBINS GELLER RUDMAN & DOWD LLP SHAWN A. WILLIAMS

s/ SHAWN A. WILLIAMS SHAWN A. WILLIAMS

Post Montgomery Center One Montgomery Street, Suite 1800 San Francisco, CA 94104 Telephone: 415/288-4545 415/288-4534 (fax)

ROBBINS GELLER RUDMAN & DOWD LLP TRAVIS E. DOWNS III BENNY C. GOODMAN III ERIC I. NIEHAUS 655 West Broadway, Suite 1900 San Diego, CA 92101-3301 Telephone: 619/231-1058 619/231-7423 (fax)

BARRETT JOHNSTON, LLC GEORGE E. BARRETT DOUGLAS S. JOHNSTON, JR. TIMOTHY L. MILES 217 Second Avenue, North Nashville, TN 37201-1601 Telephone: 615/244-2202 615/252-3798 (fax)

Co-Lead Counsel for Plaintiffs



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VERIFICATION

I, SHAWN A. WILLIAMS, hereby declare as follows:

1. I am a member of the law firm of Robbins Geller Rudman & Dowd LLP, one of the

counsel of record for plaintiffs in the above-entitled action. I have read the VERIFIED

CONSOLIDATED SHAREHOLDER DERIVATIVE COMPLAINT FOR BREACH OF

FIDUCIARY DUTY, ABUSE OF CONTROL, GROSS MISMANAGEMENT AND CORPORATE

WASTE, filed on September 12, 2011, and know the contents thereof. I am informed and believe

the matters therein are true and on that ground allege that the matters stated therein are true.

2. I make this Verification because Lead Plaintiffs are absent from the County of San

Francisco where I maintain my office.

Executed this 12th day of September, 2011, at San Francisco, California.



650452_1

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CERTIFICATE OF SERVICE

I hereby certify that on September 12, 2011, I authorized the electronic filing of the foregoing

with the Clerk of the Court using the CM/ECF system which will send notification of such filing to

the e-mail addresses denoted on the attached Electronic Mail Notice List, and I hereby certify that I

caused to be mailed the foregoing document or paper via the United States Postal Service to the non-

CM/ECF participants indicated on the attached Manual Notice List.

I certify under penalty of perjury under the laws of the United States of America that the

foregoing is true and correct. Executed on September 12, 2011.


ROBBINS GELLER RUDMAN & DOWD LLP 655 West Broadway, Suite 1900 San Diego, CA 92101-3301 Telephone: 619/231-1058 619/231-7423 (fax)

E-mail: [email protected]


Mailing Information for a Case 3:11-cv-02369-SI

Electronic Mail Notice List

The following are those who are currently on the list to receive e-mail notices for this case.

George E. Barrett [email protected]

Stephen R. Basser [email protected],[email protected],[email protected]

Travis E. Downs , III [email protected],[email protected],[email protected]

Sarah A. Good [email protected],[email protected]

Douglas S. Johnston [email protected]

Alan M. Mansfield [email protected],[email protected]

Timothy L. Miles [email protected]

Eric Ian Niehaus [email protected]

Gilbert Ross Serota [email protected],[email protected]

Samuel M. Ward [email protected],[email protected]

Shawn A. Williams [email protected],[email protected],[email protected],[email protected],[email protected],[email protected]

Marc Joel Price Wolf [email protected]

Barbara Wright [email protected]

Manual Notice List

The following is the list of attorneys who are not on the list to receive e-mail notices for this case (who therefore require manual noticing). You may wish to use your mouse to select and copy this list into your word processing program in order to create notices or labels for these recipients.

Joe Kendall Provost & Umphrey Law Firm, LLP 3232 McKinney Avenue Suite 700 Dallas, TX 75204 Joe McKey Kendall Law Group, LLP 3232 McKinny Avenue, Sutie 700 Dallas, TX 75204 Barbara H. Wright Wells Fargo & Co. One Wells Fargo Center 32nd Floor D-1053-300 Charlotte, NC 28202

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